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Commodities Trading: Investing in Water

Commodities Trading: Investing in Water

Like gold and silver, water is a commodity—and it happens to be a rather scare commodity.

While about 70% of the earth's surface is composed of water, over 97% is saltwater and unable to be used for drinking, crop irrigation, or most industrial uses.

According to the United Nations Environment Program, almost half the global population will be living in areas of high water stress by 2030.

President Biden’s infrastructure deal includes $55 billion for water infrastructure and other water system related investments. Investing in water could be a good long-term bet for those concerned about its sustainability and potentially a good option for environmentally focused investors.

Investing in companies that rely heavily on the water market to generate revenue is a good way to invest.

The closest thing to investing directly in water would be to buy water futures. The water futures market works much the same way as other commodities markets, such as enabling farmers and suppliers to manage risk associated with the changing market prices. Water futures contracts allow purchasers to lock in a price today to protect against the possibility of rising prices.

Other options include Water Index Funds and Exchange Traded Funds (ETFs) which track the performance of a related index by investing solely in the companies listed on the index.

When researching an individual stock, investors often consider several critical factors, including the company’s growth history (i.e., revenue and earnings growth), financial condition (i.e., strong balance sheet), market position, and management strength.

To research water, look at the holdings of a water index such as the Dow Jones U.S. Water Index (DJUSWU) which lists 29 water-related companies in the U.S., including beverage producers, utilities, water treatment and purification, water-related equipment makers, and companies involved in desalination plants.


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