FUND VIEW-Sarasin water fund prefers technology to utilities

By Leonora Walet

HONG KONG, Jan 13 (Reuters) - Bank Sarasin's (BSAN.S) water fund favours companies making water meters and sanitary equipment, such as Geberit (GEBN.VX), as they typically offer better potential returns than big traditional utility plays, a fund manager with the bank said.

The Swiss private bank, which manages 51 billion euros ($68 billion) and is controlled by Netherlands-based Rabobank [RABN.UL], also likes technology and solutions-oriented firms such as Singapore water treatment company Hyflux Ltd (HYFL.SI).

"Water usage is increasing and scarcity of water is a concern. Unlike oil, water cannot be replaced. There's no substitute for it," said Matthias Priebs, manager of the 35 million euro ($46.6 million) Sarasin Sustainable Water Fund.

Priebs also likes providers of water technology and companies that promote efficient use of resources, like Swiss firm Geberit, which he favours because it is market leader and has a presence in China.

"Once real estate picks up in China this year, Geberit will benefit," he said.

The fund also likes the metering industry, which promotes efficient use of water, said Priebs, citing Itron Inc (ITRI.O).

The euro-denominated version of Sarasin's water fund, launched in December 2007, fell 35.7 percent last year, but still outperformed the MSCI World stock index .MIWD00000PUS, Priebs said.

Its largest holdings included Japanese water treatment specialist Kurita Water Industries Ltd (6370.T), Canada-based engineer Stantec Inc (STN.TO) and French water and waste management firm Veolia Environnement SA [VIE.PA].

According to United Nations estimates, one third of the world's population lives in areas with water shortages and 1.1 billion people lack access to safe drinking water.

Climate change has also caused more frequent and intense droughts in sub-tropical areas of Asia and Africa, exacerbating shortages in some of the world's poorest countries.

Underinvestment in water infrastructure in developed countries like the United States and Britain will also be a key growth driver, said Priebs.

"We expect some fiscal spending in the water sector this year particularly in the U.S. and UK, where infrastructure is ageing and dilapidated. There is enormous investment needed," he said.

By one estimate, the United States alone needs to invest $1 trillion in water infrastructure over the next two decades and, globally, annual spending of up to $80 billion is required.

The fund's top 10 holdings also include water utility Aqua America Inc (WTR.N), household goods maker Henkel (HNKG_p.DE), and Insituform Technology (INSU.O), which makes water pressure pipe systems.

Water utility companies account for around half the total industry turnover of about $420 billion a year, but Sarasin prefers to limit its exposure in those firms in favour of technology and solutions-oriented companies where there is higher growth potential for returns, Priebs said.

Utilities represent 28 percent of the fund. The bank expects turnover for the water sector to grow by an average 5 percent a year over the next 10-15 years, with emerging economies seeing growth of about 10 percent a year. (Editing by Ian Geoghegan)