The Pictet Water Fund that Gottelier manages invests in equities issued by companies operating across all areas of the global water industry, with particular exposure to water technology (51.6%), water supply and treatment (37.5%), and environmental services (9.2%).
There are a number of growth themes in the water sector, Gottelier told our sister publication Fund Selector Asia. The main one is based on population growth and population movements in emerging markets, particularly China, where he said 350 million people are expected to move from rural to urban areas between now and 2050.
“This requires a huge amount of development of the existing [water] infrastructure and this is going to last for multi-decades,” he said.
Other emerging market countries with similar developments are India, Brazil and Vietnam, he added.
Governments in emerging markets are also increasing oversight of water quality, he said. Like in China, there are concerns over the quality of the drinking water, as tap water contains harmful pollutants. “There is a real problem in China and the Chinese government is taking it seriously.”
Developed markets also have tremendous demand for continued investment in the sector, he said. For example, the US requires $50bn (£34.8bn, €44.3bn) to $150bn per year to keep the water infrastructure functioning properly.
Over the long term, there is a correlation between water availability and GDP growth, Gottelier added. “You cannot grow your industry or economy without water.”
Industrial sector risks
Gottelier said investments in the water sector are generally characterised by low volatility and consistent returns. The risks are those related to investments in industrial sectors, he said.
“What we have seen historically is if you have big slowdown in oil and gas markets, some of the water companies may be involved in those sectors and they are impacted. For example, even though water companies that are selling pumps to refinery companies may only have 2-3% of revenue exposed to those markets, a significant slowdown in those markets may impact their shares.”
The farming industry is a big customer for water equipment. But during a soft commodity cycle, the water sector is vulnerable, he said. “Low commodity prices mean that farmers have less money to spend on their equipment.”
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The Pictet Water Fund has been mostly outperforming the natural resources sector over the past three years, according to FE Analytics.
