(Corrects name of fund manager in third paragraph.)
By David Randall
NEW YORK, March 21 Water is the world's most
abundant commodity. But for investors it tends to be a wash out.
That disconnect struck the team behind the Calvert Global
Water Fund as a potential source of profits.
Global climate change, increasing demand for clean water in
emerging and frontier markets, and aging pipes and pumps in the
United States and Europe should help make water increasingly
important in the global economy, said Matthew Sheldon, a
co-portfolio manager of the $407 million fund.
"When we started looking into it, we realized that this is a
trend that will be around for not just the next several years
but several decades," Sheldon said.
Yet few other funds are focusing on this market, even as the
World Bank estimates that global population growth will require
the world's water supplies to grow by about half by 2050.
There are only five water-focused mutual funds and exchange
traded funds, including the Calvert fund, according to Lipper
data. When hedge funds are included, total invested assets
focused solely on water amount to less than $10 billion,
Calvert Global Water Fund, which has gained an average of
14.3 percent during each of the last three years, won a 2014
U.S. Lipper Fund Award in the global natural resources category
in part because its portfolio differs from many of its peers,
said Jeff Tjornehoj, the head of Lipper Americas Research.
"It has done an excellent job producing way-above-average
returns with only average amounts of risk," he said.
Sheldon, who is part of the five-member management team
based in Ireland, said his fund largely splits its bets between
four different types of companies.
These include companies increasing the water supply through
desalination or irrigation; those decreasing demand through
plumbing or leak detection; companies improving water quality;
and those expanding or fixing pipes and pumps.
All told, there are about 140 companies in this investment
segment, Sheldon added.
The portfolio touches on every major sector of the economy
except financials, and it focuses chiefly on companies based in
the United States and Europe, although revenues can come from
Each of the 40 companies in the portfolio gets at least 10
percent of its revenues from water. The fund's largest holdings
include U.K. wastewater company United Utilities Group Plc
, Swiss pump manufacturer Sulzer AG, and Japanese
turbine and compressor manufacturer Ebara Corp.
Despite the concentration on macro issues, only about 15
percent of the portfolio is directly connected to government
policy or projects, Sheldon said.
The team sees little immediate impact from short-term
weather such as the drought in California or record flooding in
England, although these might nudge policy makers and businesses
to take water matters more seriously.
"Investing in anticipation of government policy is very
difficult because it always get delayed," Sheldon said.
Construction and industrial companies account for the
largest section of the portfolio, or about 40 percent.
Lately, the fund has been focusing more on companies in the
pipes and infrastructure business.
Sheldon and his team recently added to a position in HD
Supply Holdings Inc, a $4.4 billion industrial
distributor based in the United States. HD Supply gets about a
quarter of its revenues from its expanding waterworks business,
which provides water and sprinkler systems to residential and
commercial construction sites, according to Thomson Reuters
data. The company's shares, which debuted on the public markets
in June of 2013, have slid 2.5 percent for the year to date.
The fund has also been adding to its position in Flowserve
Corp, an $11.2 billion market-cap company that is one of
the leading makers of pumps and pipes used in water treatment
plants around the world. In December, the company announced it
will provide all the pumps at a desalination plant in Chile
that, when completed, is expected to be the largest such
facility in the Western Hemisphere.
Investors who want to add water to portfolios will pay an
annual expense fee of $1.85 per $100 invested, a level higher
(Reporting by David Randall. Editing by Lauren Young and Andre