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Thematic ETFs: Why water is a good long-term buy

thematic_etfs_water_investmentThematic ETFs in Europe were seen as big winners in 2020 with strong returns attracting a record €9.7 billion in new assets throughout the year. This year, water ETFs are said to be ones to watch out for.

No thematic ETFs closed throughout last year, while 17 more were added to the market.

“The disruptive volatility experienced in the oil markets led many to seek alternatives and to revaluate the associated risk and return of alternative energy sources,” Kenneth Lamont, senior analyst of passive strategies at data provider Morningstar, said.

He highlighted that the favourable US election result and other pro-environmental political developments globally were also supportive to the European thematic ETF industry.

The fact that water-themed ETFs were not among the big winners of 2020 makes them a good longer-term buy, according to the analyst.

“Water ETFs are my ones to watch this year,” Lamont told Funds Europe. “The case for investing in water is compelling, particularly over the medium to long term. Fresh water is not distributed equitably across population centres, nations or regions. Moreover, given its weight, water is not easy to transport in sufficiently large quantities.”

Water security, much like food security, is set to be amongst the major challenges of this century presenting major issues for investors in the future representing the perfect storm of regulatory, policy, and political risk.

“As populations continue to grow, supply and demand for water is set to become progressively more imbalanced, especially in arid regions with contaminated water,” Lamont explained. 

“For regions with easily accessible water resources like rivers and underground aquifers, the risk of overconsumption and inefficient recycling are real threats to the sustainability of these resources. These constraints pose a global profit opportunity.”

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