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Things to consider when investing in AI

How scarcity is driving up investments into water.

In May 2023, Lake Mead, which is located near Las Vegas, dries up — unleashing a chilling insight into what may have transpired in the past — remains of those who are believed to be the victim of the ‘mafia era’ now resurfaced. Looking beyond the ghastly sight of human remains chucked in a barrel, a more menacing threat looms.

The earth is heating up

Based on the data collected by the NOAA Climate, the global average surface temperature has been rising over the past few decades, especially since the 1970s. It is not at all a weird thing, given how the manufacturing industry boomed in the 1970s, a rally that never really halted.

Some might go about denying that the earth’s climate is changing, but even so, all could perhaps agree that the weather has become much more vicious over the years. In March 2022, for example, the US is under a draught onslaught with California reportedly receiving only 15% of its normal precipitation.

Sadly, it’s not just California that was facing this issue. Around 55% of the continental US was going through droughts. Moving forward to April 2023, it was recorded that around 4% of the contiguous US is experiencing severe to extreme drought, and 15% is in the moderate to extreme level.

Why invest in water?

Essence of life

 

Water is a fundamental resource required for human survival, agriculture, and industrial activities. As the global population continues to grow, the demand for clean and accessible water is increasing. Investing in water-related assets can provide long-term opportunities for growth and stability. You can invest in fuel, but it is now slowly being replaced with electric counterparts, but we don’t see how water is going to be replaced anytime soon — or ever.

 

Scarcity

 

Despite covering about 70% of the Earth’s surface, only a small percentage of water is freshwater suitable for human use. Factors such as pollution, climate change, and population growth contribute to water scarcity in various regions around the world. Investing in water can benefit from the limited supply and increasing demand, potentially leading to price appreciation. If you ever watched Mad Max, you’d see how water plays out as the most valuable currency there is — although hopefully, we wouldn’t have to be in such circumstances.

 

Contribute to the society

 

The world’s water infrastructure, including pipes, treatment plants, and distribution systems, requires significant investment and maintenance. Governments and private companies are continuously investing in upgrading and expanding water infrastructure to meet the growing demand.

It supports the development of sustainable water management practices, encourages innovation in water conservation and purification technologies, and contributes to improving access to clean water in underserved areas. Such investments can align with ethical and responsible investment strategies.

Can you make money by investing in water?

Water is considered a defensive investment due to its stable demand regardless of economic conditions. Even during economic downturns, people and businesses still require water for basic needs. Investing in water can provide a hedge against market volatility and economic uncertainty, potentially offering more stability to an investment portfolio.

Take a look at the graph below, where we list a few stocks that center around water commodities. The stocks are American Water Works (AWK), Essential Utilities (WTRG), Consolidated Water (CWCO), and Primo Water Corp (PRMW).

As you can see, despite the short-term volatility of the stocks mentioned above, the stocks involved in water commodities are rising steadily over the long term. Say, if you’ve invested $1,000 in AWK in 2012, it would be worth around $5,774 by now, with an annual rate of return of around 16.56%, and a 477% increase in value.

Take the lowest among the bunch, PRMW, as another example. If you’ve invested $1,000 in 2012, the value would be $2,666 by now. That is a 166.61% increase in value, and you’ll be looking at an 8.95% annual rate of return.

Apart from investing in individual stocks, you can also purchase ETF, which is a group of stocks under a fund that is sold just like a stock is — you can purchase it in the stock exchange much like any other stock. Among these ETFs are Invesco Water Resources ETF (PHO), First Trust Water ETF (FIW), and Invesco S&P Global Water Index ETF (CGW).

However, the list of stocks and ETFs above is not comprehensive, nor is it a suggestion for you to purchase said assets. There are many other stocks and ETFs that you may want to look into.

Bottom line

  • Investing in water can be a lucrative opportunity driven by reliance on it, its scarcity, and the societal impact it brings.
  • As the demand for clean water continues to rise due to population growth and climate change, water-related assets can offer long-term growth and stability.
  • Investing in water can provide a hedge against market volatility and economic uncertainty, making it a defensive investment.
  • However, thorough research and professional advice are crucial when selecting specific assets for your investments.

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None of the material above or on our website is to be construed as a solicitation, recommendation or offer to buy or sell any security, financial product or instrument. Investors should carefully consider if the security and/or product is suitable for them in view of their entire investment portfolio. All investing involves risks, including the possible loss of money invested, and past performance does not guarantee future performance.

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