"Water industry digitalization promises substantial earnings"
The KBI Water Fund, established in 2008, was one of the early pioneers in sustainable thematic investing, focusing on companies that offer solutions to major water problems. At a time when sustainable thematic investing was not popular, the fund has managed to carve out a niche for itself.
The growth of targeted water investments from a niche to a mainstream choice has been driven by several key factors. One of the primary drivers is the increasing need for water infrastructure. Aging municipal water infrastructure requires urgent upgrades and expansion to serve growing populations and industrial demands, particularly in water-scarce regions. This creates a steady and growing market for water infrastructure investments.
Rising awareness of water safety issues, such as the emergence of contaminants like PFAS, has also boosted demand for advanced water treatment and measurement technologies. The expansion of water-intensive industries, like AI data centers and semiconductor manufacturing, has created new industrial water infrastructure demands.
Digital transformation and efficiency improvements in water utilities offer operational efficiencies and financial sustainability, making utilities more attractive investment targets. The demand for water infrastructure and technologies is further fueled by population growth, with many suppliers in the water industry only now realizing the need to adopt "Smart Water" and digitize water infrastructure.
The KBI Water Fund has a concentrated portfolio of 40 to 50 stocks, with up to 70% of its portfolio consisting of pure water companies. The fund invests in manufacturers of filters and treatment plants, as well as companies that operate these plants long-term. The fund's portfolio includes companies that offer filtration and treatment solutions for PFAS in water.
The KBI Water Fund focuses on small to medium-sized companies, often operating in niche markets. It considers companies from emerging markets for investment opportunities, actively engaging with these companies to improve corporate governance. The fund maintains regular dialogue with the companies in its portfolio.
Increasing the percentage of globally used water that is reused could create a sustainable solution for water supply problems. More investors are interested in water investments due to the sustainability trend. However, ESG scoring can be challenging for companies in emerging markets, but dialogue with management helps.
The lack of women on boards in many companies from emerging markets is a concern. The KBI Water Fund, like many other funds, has a long way to go in terms of gender diversity.
In conclusion, the KBI Water Fund has played a significant role in the growth of water investments, capitalizing on the increasing demand for water infrastructure and technologies. As the world grapples with water scarcity and safety issues, the fund's focus on sustainable thematic investing is more relevant than ever.
- To tackle water scarcity and safety issues, the KBI Water Fund enhances its focus on finance by investing in small to medium-sized real-estate and technology companies that specialize in advanced water treatment and filtration, particularly those catering to emerging markets.
- As technology evolves, the water industry increasingly adopts "Smart Water" and digitizes its infrastructure, opening up new opportunities for investing in real-estate, with a growing market demand for water infrastructure in response to population growth and the rise of water-intensive industries like AI data centers and semiconductor manufacturing.
