Droughts are Making Water, Earth’s Most Vital Liquid, an Increasingly Solid Investment

It’s been almost nine months since Wall Street turned on the taps — with the launch of the Nasdaq Veles California Water Index on December 7th, 2020, investors have been able to bet on the price movement of water. The…

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It’s been almost nine months since Wall Street turned on the taps — with the launch of the Nasdaq Veles California Water Index on December 7th, 2020, investors have been able to bet on the price movement of water.

The real-world droughts that followed have made for an oasis of opportunity.

Liquid Gold

As droughts and wildfires hammered the U.S. West Coast, California declared a state of emergency in April, and last month asked residents to cut their water use by 15%. As of July 31, California’s major reservoirs held just 53% of their historical averages. While the circumstances bode poorly for the verdant lawns and gardens of Hollywood’s rich and famous, the new H2O futures market is thriving:

  • The Nasdaq Veles Index, which represents the average price of water-rights transactions across California, has risen 87% this year to over $923 per one-acre foot (or per 325,851 gallons of water).
  • There are roughly 65 water funds globally, with a combined $35 billion in assets under management. And the Invesco Global Water exchange-traded fund, which tracks firms producing water purification and conservation products, is up 22% this year.

“The path of least resistance for water prices is higher, as water scarcity is already a concern in certain areas around the world, and we believe that water as a commodity is gaining more traction,” Deane Dray, a managing director at RBC Capital, told Barron’s.

Scramble to Save: Half of the companies on each of America’s four major stock indexes are in industries with medium-to-high water risk, meaning water conservation is rapidly becoming a corporate priority. Pepsi, for example, recently announced plans to replenish 100% of the water it uses in manufacturing in high-risk areas by 2025.

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