Sandy’s Devastation Triggers Awareness of Water Issues
Calvert Global Water Fund directs investment toward needed water infrastructure improvements.
The devastating flooding in New York City, New Jersey, and other coastal areas of the northeast caused by hurricane Sandy in late October has directed much more attention to water-related problems. As a result of the storm, some public officials have proposed that governments explore potential engineering or infrastructure projects that could help lessen the impact of future storm surges. For example, there has been discussion about construction of a barrier stretching across the entrance to New York's harbor that could essentially block much of a future water surge like the one that inundated parts of New York City as a result of "super storm" Sandy.
The staff of Calvert Investments would like to express sincere sympathy for the victims of hurricane Sandy.
Water Sustainability Challenge
Calvert Global Water Fund is one of Calvert's SolutionÂ® Strategies, which are investment portfolios that selectively invest in companies that produce products and services geared toward solving some of today's most pressing sustainability challenges. Calvert Global Water Fund specializes in helping to direct investment toward solutions to address the mismatch between the booming worldwide demand for water and the finite supply of water as well as to water-related problems such as flooding. Calvert launched the Fund in 2008 after recognizing the need to address the water sustainability problem.
Companies that design and improve water infrastructure, including pipes, pumps, and valves, make up one sub-sector of the broad water stock sector. Even before the massive east-coast flooding from hurricane Sandy, Calvert Global Water Fund's lead portfolio manager, Jens Peers of sub-advisor Kleinwort Benson Investors International Ltd., liked the prospects for water infrastructure stocks. Peers says that the outlook is particularly bright for infrastructure companies that focus on pumps and valves and have significant exposure to the expansion of heavy industrial complexes around the world.
Infrastructure Maintenance Neglected
Aside from the water infrastructure needs generated by industrial expansion, simply maintaining the current system of pipes and valves that deliver water to urban and suburban dwellers in developed countries will require significant investment. The water systems in the areas affected by hurricane Sandy generally withstood the storm and kept drinkable water flowing, but the simple age of much of the water infrastructure in the United States will likely cause problems soon. Many urban water systems in the United States rely on pipes that are well over a century old, and pipe leakage results in the loss of six billion gallons of water daily.
Bursting water pipes or other types of infrastructure breakdowns periodically trigger public awareness of the need to maintain and upgrade these systems. Politicians are slowly beginning to take action. For example, earlier in 2012, Texas approved $6 billion in water infrastructure spending in response to a drought.
Growing Imbalance Between Supply and Demand
From a broader point of view, these infrastructure problems are restricting the world's supply of drinking water, which is already limited by the fact that water is a finite resource. Global population growth and the economic development needs of emerging economies will only cause the demand for water to increase. A recent McKinsey study predicted that there will be a 40% gap between worldwide water demand and supply by 2030 if there are no improvements in global water infrastructure.
We continue to believe that this fundamental imbalance between supply and demand should make the water sector an attractive long-term investment opportunity. The need to repair and expand water infrastructure is only growing more urgent as funding problems stemming from the financial crisis of 2008 and 2009 have held back some infrastructure improvement projects. As the economy recovers and a more normal funding environment returns, we expect an increase in infrastructure spending to carry out the backlog of delayed projects, supplemented by spending on new projects. Of course, the other benefit of investing in the water sector is that many of the companies operating in the sector can help improve access to clean water worldwide as well as address water-related risks such as floods and droughts.
This commentary represents the opinions of its author as of 11/30/12 and may change based on market and other conditions. The author's opinions are not intended to forecast future events, guarantee future results, or serve as investment advice.
Calvert Global Water Fund is subject to the risk that stocks that comprise the water-related sector may fall in value. The water industry can be significantly affected by economic trends or other conditions, such as the availability of water, the level of rainfall and occurrence of other climatic events, and changes in consumption, in addition to environmental considerations, taxation, and government regulation (including the cost of compliance). The Fund is non-diversified and may invest more of its assets in a smaller number of issuers than a diversified fund; therefore, gains or losses on a single stock may have greater impact on the Fund. A downturn in the water-related sector would impact the Fund more than a fund that does not concentrate in this industry, and the Fund therefore may be more volatile than a typical mutual fund. Lastly, foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuations.