Water and Luxury: Two Sectors Destined to Converge
Water is essential for life, and we wonder if could become a luxury?
You may wonder why in this space dedicated to luxury we will discuss water, a good we use every day in a nearly automated manner, giving no further thought to where it comes from. Did you know that a simple cup of coffee implies 140 liters of water for production, packaging and transport? This is just an example, though do you think it is sustainable? Maybe it wasn’t in the past, but could it be that today water is actually a luxury good?
We don’t have to go very far to find the substance that accounts for 72% of our body. How could we not consider it a luxury, as water is one of the most important elements for humans, indeed for all forms of life! The oceans count for 96.5% of all the water on earth, they cover 70% of its surface. Only 0.5% to 1.0% is potable. Given the relative sarcity of usable water, the companies dedicated to its treatment, desalination and bottling have become indispensable to cover present and future needs around this precious good.
So much so, that Willem Buitler, the chief economist of Citibank, said that water will become the most important commodity in the near future. Experts generally agree that the key risk over the next years lies inthe outlook of a shrinking water supply, due to pollution related to the disappearance of glaciers, the main reserve of fresh water on the planet. Another challenge would be the dramatic increase of the world population from currently 7.2 billionto over 9 billion projected by mid-century.
Which brings us to China. Its demographic changes produce a growing middle-class that consumes evermore water in a country that already suffers from severe water shortages and from pollution. Not surprsingly, the Chinese government has taken steps, declaring water a strategic resource, and has invested large sums of money to channel this element. China is not alone. In most emerging countries there is a fast growing industry around the value chain of the water.
As usual in this column, we concentrate on how to invest in such a vast topic: There are as many types of water as there are consumers, with the producers seekingproduct-distinction to satisfy even the most picky customers. When it comes to water, adjectives such as “tasteless”, “odorless” or “transparent” are long gone. Today, one can buy water with very specific origins from all over the world: Rainwater, Iceberg-water, Volcano-water… all come with a price. Brands such as Ogo or Bling H2O -among the most expensive in the world- sell bottles at €1,000 per liter. A sip available to very few.
Considering a time horizon a little longer than a few sips, investing in water is more complicated than it seems. Even if it is considered a commodity, the trading modalities associated to it are far from similar to those of other commodities: Unlike gold or oil, water has no marketplace to be traded at and there are no derivatives to take positions.
In order to invest in the sector, at AFS Finance Advisors EAFI this year we have recommended both to clients and to investment firms two different approaches: The purchase of shares of the French company Veolia Environnement (+36.8% ytd) and a more diversified way through a thematic investment fund: Pictet Water (+1.31 % YTD), a fund that in spite of the turbulences in August remains in positive territory. Over the last three years the fund is up 40%; it could be an attractive option for those with a medium to long term horizon.
The answer to the question we asked at the beginning is: Yes, today the water sector is intrinsically linked to luxury. We see it as a strategic key sector, as well as one of the megatrends in the future. Within the boundries of each client’s profile, it represents one of the performance generating investment alternatives available today.
Disclosure: The author is not responsible for the views expressed in the article. The text was written freely expressing ideas, without receiving any compensation. The author has no business relationship with any of the companies whose shares are listed in this article.