Monday, August 21, 2006

Should Water Find A Place In Your Portfolio?

I came cross an article about global water shortage on BBC News today. The main message of the article is that water shortage, which is usually seen as a developing country problem, now posses a threat to both rich and poor countries alike. This reminds me an article I read early this year on MarketWatch on how water is a precious commodity as compared to oil, which everybody believes we will run out of someday. Water, however, seems to be every where and easy to get.

To get an idea of how water as an investment choice may be more appealing than it looks, the article presented some interesting numbers. For example,

  • Only about 1% of the water on earth is suitable for consumption.
  • U.S. consumed about 408 billion gallons of water per day in 2000. In April 2006, the daily demand of gallons is about 382.2 million gallons.

However, water won't be treated as preciously as oil. When you have a truck load of oil, it represents wealth to you. On the other hand, a tank of water isn't likely to bring you much profit, if any at all. A worldwide shortage of water doesn’t necessarily mean that we will run out of water before we run out of oil. At present time, water isn’t traded as a commodity as oil. To change that, according to the MarketWatch article, we need to see some sort of crisis like the oil embargo in the 70s.

Currently, my water play is the Powershares Water Resources ETF (PHO), which tracks the Palisades Water Index. Year-to-date, PHO has a return of 11.18%, compared to S&P’s 5.59%. PHO, despite its performance, has an expense ratio of 0.67% on top of the commision you pay for trading it through broakers.

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