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What is a 'Water ETF'

The water ETF is an exchange-traded fund that invests primarily in companies that operate within the purview of water treatment, distribution and sales. This ETF goes beyond the scope of private companies and deals with utility companies and third-party marketers as well.  

BREAKING DOWN 'Water ETF'

The water ETF contains manufacturers of all water-related products, including the retail sale of bottled water and the distribution of public water systems at a municipal level. Due to the large range of services this may cover, investors may encounter companies that focus in bottling, purifying or even testing water. Quarries or other bottling sites could also be included in the fund.

The water ETF is not as large of an indicator of a healthy bull market because water is a necessity. Although it is consumed in different ways, it is used by all lifeforms, and needed for the survival of almost every species on Earth. However, even with the worldwide necessity for water, the funds are not without risks. Like all investments, there is the potential for loss. Companies that bottle water may cease to be profitable. A purification company may be party to a lawsuit that requires a large payout. Public utilities are even subject to financial loss, as was the case with the contaminated water provided to residents in Flint, Michigan.

The Global Quest for Clean Water

While water is needed by all forms of life, quantities are limited. Many major cities in countries around the world are continuing to experience shortages and droughts. Cape Town, Africa recently experienced a drought that threatened erode the city’s water supply. India has also been experiencing droughts for centuries, many of which have resulted in drastically reduced crop production, farm animal fatalities and loss of human life.

Although much of the receding water supply stems from drier than normal monsoon seasons, global warming and climate change are also suspected to play a role.

Water shortages and water scarcities continue to be a major threat around the world, but also within the U.S. as well. In 2014, California experienced record setting droughts and in Michigan, pipes that were not safe for drinking water leached led into the towns water supply, making many of the town’s children and elderly residents fall ill. It’s not just climate change that is bringing about a water crisis, but faulty and aging infrastructure as well. According to the World Wildlife Fund, approximately 1.1 billion people around the world go without access to clean water.

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