"There are plenty of companies in this sector that can fail," she says. "But in the long-short format, we have opportunities to benefit from those failures."

Liquid Investment
One of most enduring and fundamental components in the cleantech space is water, where the interplay between population growth, economic growth and dwindling clean water supplies makes a compelling case both for new water infrastructure projects and upgrades of existing systems.
William Brennan, president and portfolio manager at Brennan Investment Management in Wayne, Pa., sees significant opportunity in China. He notes that by 2020, China will have 212 cities with populations of one million or more. This puts a lot of pressure on a country with roughly 22% of the world's population but just 6% of its available water.

"They're trying as quickly as possible to get their infrastructure up to speed, but it's a monumental task," says Brennan. His company is an RIA that subadvises the Kinetics Water Infrastructure Fund, and creates separately managed accounts for endowments, family offices and other RIAs.  
Brennan says he's tapping into the China water scene through Chinese water-related companies listed on U.S. exchanges.

The key themes underlying the Kinetics Water Infrastructure Fund are fourfold:  Water utilities and related infrastructure primed to cash in on the global push to modernize the pipes and systems that deliver water; filtration and purification, which comprise membranes, treatment plants and desalinization; irrigation, an important focus considering that agriculture consumes huge amounts of water; and water rights, which is a big issue in the western U.S. and in Australia.

Brennan is particularly keen on the utilities and infrastructure theme. He expects publicly traded utilities to be in the sweet spot because many cash-strapped municipalities can't afford to upgrade their water systems and he expects a lot of them to sell their assets. "Publicly traded utilities will be there with a catcher's mitt saying, 'Throw that fast ball because we're the only ones who can catch it,'" Brennan says.

From an investment perspective, Brennan says utilities have underperformed the overall market for the past 18 months or so, and the group recently traded at discounts not seen in 15 years (based on a return on their net regulated asset base).

Before their recent underperformance, Brennan says the U.S. water utilities group returned almost 800% between 1999 and 2008, based on a basket of utilities that have operated continuously during the past 20 years.

To pay for expected water infrastructure upgrades in the U.S., Brennan expects consumers will ultimately pay the freight through rate hikes of as much as 15%. And that could make utilities a compelling investment, thanks to a combo of guaranteed rate hikes and fat dividend yields that recently averaged 3.35% for the group.

If Brennan's thesis pans out, at least people who are invested in water utilities could get a little relief from those higher water bills.

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