Can You Afford Not to Make an Investment in Water?

Can You Afford Not to Make an Investment in Water?

Simon Gotteliere, Natixis Investment ManagersSimon Gotteliere, Natixis Investment Managers

Water is the only true life-sustaining resource – far more precious than other commodities such as oil or even gold, which many investors instinctively hold in their portfolios for security, Simon Gottelier of Thematics Asset Management, says in an interview.

Simon Gottelier, water is not really a new investment topic. What is Natixis’ added-value to its fund?

A strong and consistent investment process is a vital part of our offering to clients, coupled with what we believe to be the most experienced team of Water Fund Portfolio managers in the market today and a strong, truly global partner in Natixis IM.

Hallmarks of this process include being benchmark agnostic and unconstrained in terms of geography and market capitalization. Furthermore, of key significance is our enlarged investable universe based not upon the thematic purity of the companies identified.

Could you elaborate on this topic?

But rather upon identifying global market leaders in the water sector, which we believe are often the companies exposed to the markets with the highest growth available – for example in the membrane filtration market, or the so-called ‘point-of-use’ water treatment market, where there are no «pure-play», listed participants and where annual growth outstrips the broader global water market approximately three-fold.

«The theme is compelling for the simple reason that it is supported by long-term secular growth drivers»

This evolution has enabled us to access roughly 10 percent more companies than we could previously invest in with purity «constraints».

Why is water an investment theme?

Water is the only true life-sustaining resource – far more precious than other commodities such as oil or even gold, which, as we know, many investors instinctively hold in their investment portfolios for security.

In such uncertain geopolitical times, where climate change is also such a prescient factor, I always ask the question of my clients, can you afford not to make an investment in water?

Rhetoric aside, the theme is compelling for the simple reason that it is supported by a diverse range of long-term secular growth drivers which give us great confidence that the topic will be as relevant in 50 years’ time as it is today.

How has water evolved in the last years as an investment topic?

Perhaps one of the most gratifying characteristics of water investing is the relatively slow-moving but ultimately quite consistent way in which spending decisions are made in the constituent end markets. Over the last decade or so, this has resulted in a global market growth rate of between 4 percent and 6 percent for an investable universe with $700 billion in terms of annual recurring revenue.

«We don’t believe that there is necessarily a silver bullet in terms of how to outperform as water investors»

Today, however, and perhaps over the last three years or so, I would say that the growth of the overall market has increased by around 100bps per annum as a function of the biggest evolution we have seen to date in the market; the increased penetration of big data, analytics, pipeline condition assessment, and quality monitoring.

What are the parameters for successfully investing in the water theme?

We don’t believe that there is necessarily a silver bullet in terms of how to outperform as water investors, but we certainly do believe that there is literally no substitute for experience.

Arnaud Bisschop, my co-PM, and I have managed water funds for nearly 30 years combined and previously both worked in the Water industry – a unique combination in the market. This brings with it a deep network of contacts in the industrial, utilities and academic worlds, offering us what we believe is an additional edge in terms of the quality of information we receive and upon which we base our decision making.

What are the new options to widen your field?

The approach we have taken in terms of identifying an investable universe by removing any arbitrary thematic purity hurdles has nicely enlarged our opportunity set.

«The majority of the new opportunities emerging are in the smart water»

Thereafter, the emergence of new technology companies which are increasing the growth profile of the industry overall, the old economy, cyclical market participants which provide the backbone of the theme, along with quite «vanilla» defensive businesses such as regulated water utilities in the U.S. or U.K. give us quite enough companies to follow.

The range of business models on offer means that we look at companies as diverse as residential irrigation system providers, through industrial water pump manufacturers, to water testing laboratories and Brazilian sanitation and drinking water utilities – each with a different cycle and set of drivers to consider.

«A hallmark of the water team at Thematics Asset Management is that it is stable»

The majority of the new opportunities emerging are in the «smart water», data and analytics space, where we continue to expect to see growth and corporate activity.

Simon Gottelier  is a senior portfolio manager focused on water investments at Thematics Assets Management, an affiliate of Natixis Investment Managers. He has over 20 years of industry experience.

BANINT118-0220_Finews_partnership_ESG_box_MPU_banner2__1__crop.jpg

SOURCE FINEWS