I enjoy the intellectual exercise of thrashing out an investment idea. For example, a recent track of mine has been as follows:
I come from a geography background and my thinking often focusses on future changes for human population and the impact we have on the environment. It is a well known fact that human population will continue to increase in the future (all else equal). Therefore, it would be a logical step to think about what effects these demographic changes will have on economies and financials.
It is difficult to predict how people will change in the future, but there are some fundamentals we can be confident about: more people will mean more food will need to be produced, more water will be needed (think drinking, farming, washing, & flushing toilets), and more space will be needed to house people - either spreading urban centres or intensifying existing ones with high-rise blocks, which will put pressure put further pressure on on food and water resources and supply chains.
Both farming and house building are industries that may be disrupted; farming techniques can be more intensive, or could move to a more efficient manner (vertical farming), and housing could be high-rise or co-habiting may become the norm. Therefore I have excluded these for now (notes have been scribbled for future reference…)
However, water seems like a more difficult beast to improve and disrupt.
It is a fundamental for life, it is used not just as a pure product, but also intensively in farming and other consumables such as wine.
Ok, nice theory you may say but what are the numbers like?
• Only 0.25% of the planet’s water can be used for drinking water, the rest is salt water, glacier and permanent snow cover, or polluted
• Today 9 times more water is used globally compared to 1900
• To grow a kilo of rice requires 2,400 litres of water, a kilo of beef requires 15,000 litres.
To put the growth of water consumption in perspective, global population has increased from 1.6 billion in 1900, to 7 billion in 2011. A 270% increase in population has seen a 900% increase in water use.
As a rule of thumb, investing in an asset with a limited supply but high demand is a good bet. If you could also predict that the demand is likely to increase over time then the bet looks increasingly attractive, right?
Ok, so population is predicted to increase to 8 billion in 2023, 9 billion in 2037, and 10 billion in 2055, respective increases of 14.3%, 28.6%, and 42.9%. If historic water use increases at the same rate compared to population growth, water use will increase by 3.3x population increase rate, i.e. 47.9%, 94.4%, and 141.6% over 12, 14 and 17 year timeframes.
Companies such as Xylem Inc, a US Company who provide water technology (transport, treatment, testing), and Severn Trent, a FTSE 100 listed company who are a major water provider in the UK, could potentially benefit from these future changes.
There are actively managed funds, as well as ETFs of course, with water as their focus, all invested in water-related equities.
Interested to hear thoughts for and against, and any equity/ETFs related to this (not advice of course!)