Though not as widely talked about as climate change, water sustainability is a growing concern for many environmentally focused investors.
Shortages and consumption issues have caused global reverberations, including higher water prices in California, rationing in South Africa and boycotts against global bottled drink brands—and more investors are paying attention. Many are directing a portion of their investments to funds that focus on themes such as water risks associated with pollution and climate change, and other issues that can jeopardize access to fresh water and the ability to meet human and ecological water demand.
“Investors have become aware of the risks it poses to profitability of companies in their portfolio as well as the well-being of society, and are looking to ensure the long-term sustainability of both,” says Sudhir Roc-Sennett, head of stewardship at Vontobel Asset Management .
One way to gain exposure to this area is through an exchange-traded fund or mutual fund that focuses on water sustainability and related risk. There were nine such U.S.-domiciled funds in Morningstar’s database at the end of May.
To be sure, thematic funds only represent a small sliver of the overall market, but they can be good as a substitute for picking specific stocks. When choosing among water-themed funds, investors should know that they may overlap on some of their holdings, but they differ in things like returns, expense ratios, the underlying index they track and how long they have been around. Some of these companies might already be in other funds investors own, so they should make sure they aren’t overexposed.