Inside the world’s biggest asset manager, an investment strategy is being fine-tuned based on a bet that the rich world will increasingly face a lack of clean water.
“Historically, we often thought of water as being a developing-country problem, but it goes much deeper than that,” Omar Moufti, product strategist for thematic and sector exchange-traded funds at BlackRock Inc., said in an interview.
Moufti said it’s hard to overstate the long-term risks tied to water scarcity. He also said that “more severe and frequent droughts and floods across the globe have highlighted” how urgent the threat is.
Britain’s Victorian-era water works buckled under the pressure of floods in recent months, leaving the UK to deal with sewage spewing into its clean water. In France, over 100 municipalities were without drinking water over the summer, leading the government to ban farmers from irrigating their crops.
In central Europe, drought left the Danube and Rhine rivers almost un-navigable, while the Po in Italy dried up. In the US, regional restrictions were enforced on the amount of water municipalities could pump, as water levels in key reservoirs dropped to record lows. And in states such as Mississippi, locals lost access to clean water altogether.
Scientists predict that extreme weather events behind such disruptions will become more frequent and intense.
“We need to mitigate those risks,” Moufti said.
The BlackRock fund that Moufti helped design—the iShares Global Water ETF (ticker DH20@LN)—invests in everything from water utilities and pump manufacturers to companies that improve water efficiency. The top five holdings in the $2 billion exchange-traded fund include American Water Works Co., Xylem Inc., Essential Utilities Inc., Ferguson Plc and Geberit AG. Moufti said the fund reflects the growing concerns about water scarcity in the world’s richest economies—and it's a danger that may not be fully priced into the market.
It’s about “investing in water equipment like pumps, or improving piping to reduce water losses or enhancing waste water treatment,” Moufti said.
So far this year, the BlackRock ETF has dropped 28%, slightly less than the S&P Global Water Net Total Return Index. The fund advanced at an annual rate of 8.3% over the past 10 years.
“Thematic investment is long term, and the rationale behind setting up this fund is that we see it as a long-term structural growth opportunity,” Moufti said. “We have an increase in population and water demand, but limited resources. And positive developments on regulations and funding will continue to support this sector.”