WAT is an ETF which allows investors to access a basket of 20 international stocks specializing in water production and distribution. These companies are half American, and the other half Asian (Japan, China) and European (United Kingdom, Switzerland, France).
This ETF is listed on the Paris stock exchange, but with a high exposure to foreign currencies (especially USD, Pound Sterling and Swiss Franc). Companies with different activities can be found in this index: there are specialists in water distribution and utilities (Veolia, American Water Works, etc.), companies specializing in water cycle technologies which manufacture pumps and filtration and distribution systems (Xylem, Pentair ...), while other companies are more exposed to the construction (Plumbing etc ...).
The historical performance of this ETF has clearly been positive since its launch in October 2007 (multiplied by more than 2) and higher than that of the S & P500 and the Stoxx600, which can be explained by the theme itself, which benefits from long-term catalysts (demography, urbanization, development of emerging countries), but also by the financial dynamics: these companies have a very high capital structure, which involves significant debt and are therefore sensitive to interest rates. The decline in interest rates that has grown strongly since the financial crisis in 2009 has had a very positive effect on these companies, which have been able to finance their investments at a lower cost. A lasting and unfavorable evolution of interest rates could end up being negative for the sector, while the economic program of the new US administration is analyzed in first reading as inflationary (revival of infrastructure, drastic reduction of corporate taxes, deregulation).
We are buyers of this ETF in a long-term perspective, as the scarcity of resources coupled with heavy demographic trends and urbanization offer a considerable market to these companies.
The fees amount to 0.60%, which is in the average of the range for the thematic ETFs.
Since March 2009, WAT has been multiplied by more than 4; It rose by 8.5% in 2016 and by 4.2% in 2017. This very steady bullish trend is realized with little volatility which reinforces its attractiveness The theme of the reflation of the economy, and the rise in interest rates had a limited negative short-term impact on the index. However, we believe that the potential for long rate appreciation is rather limited, due to strong structural deflationary factors (technology / globalization). The model of concession and water infrastructure companies should therefore not be challenged on a long-term basis.
