Despite the fact that water consumption has doubled the rate of population growth, investors still pay zero attention to the essential commodity. Over the past year, water-related equities have fallen right along with the rest of the market. Sector measures like the PowerShares Water Resources (ARCA:PHO) sit closer to their 52-week lows rather than their highs. (For related reading, see Water: The Ultimate Commodity.)

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However, the long-term picture for water-related firms is still quite rosy. As incomes and populations in a variety of emerging nations continue to rise, the demand for water is also increasing. These incomes are moving water beyond the basic requirements needed for drinking, cooking and hygiene. Analysts estimate that over the next 20 years, India is expected to see its water demand more than double and China's will rise by 30%. The World Resources Institute projects that overall water demand will increase by more than 50% over the next 15 years in emerging market nations and by more than 15% in developed markets.

Given the long-term bullishness towards the water theme, investors may want to consider adding that type of stock to a 2012 portfolio. Here are some stocks and funds to watch for in the coming year.

Desalination Growth
Abundant natural gas and renewable energy has many nations now turning to desalination as a way to solve their water problems. Analysts at Pike Research estimate that cumulative investment in new plants will reach $87.8 billion worldwide from 2010 to 2016. This bodes well for engineering and construction firm, Tetra Tech (Nasdaq:TTEK). The company has been designing desalination facilities in Florida since the 1990s and developed California's first desalination plant. The firm continues to expand globally as well. In addition, Energy Recovery (Nasdaq:ERII) designs and manufactures products that allow plants to capture lost power, often with up to 98% efficiency. These two stocks offer an interesting pair to play the growth in worldwide desalination. (To learn more, read WaterSense: Saving Water And Money.)

Big Dividends in Water Utilities
Investors who are looking for income can find plenty of opportunities in the water sector. Middlesex Water (Nasdaq:MSEX) currently yields about 4% and has increased its dividend in each of the last 39 years. Similarly, The York Water Company (Nasdaq:YORW) just paid its 564th quarterly dividend and yields 3.2%. Both offer investors a wide range of infrastructure assets as well as water-reservoir exposure. These firms should continue to see outperformance as more portfolio focus is put on equity income.

The ETF Plays
Finally, for investors wanting to take advantage of the entire spectrum, there are plenty of exchange-traded funds (ETFs) that invest in the sector. The First Trust ISE Water Index Fund (ARCA:FIW) tracks the top 36 water stocks and has been the best performer in the category this year. The fund features a variety of water-equities including ITT (NYSE:ITT) and Watts Water (NYSE:WTS). Investors looking for more of a global focus can refer to the Guggenheim S&P Global Water Index (ARCA:CGW) and PowerShares Global Water (ARCA:PIO). (To learn about ETFs, read Exchange-Traded Funds.)

The Bottom Line
Despite the pressures facing our water systems, investors continue to ignore the precious commodity. Going into 2012, stocks within the sector offer a unique investment that should pay off in spades. Adding some of the previous funds or individual equities makes an ideal play in the New Year.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Aaron Levitt did not own shares in any of the companies mentioned in this article.

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