When water opened the financial floodgates

KS Badri Narayanan Chennai | Updated on May 08, 2021

Stage set for more investment products based on water

Water is gaining currency globally. It is a commodity consumed for various purposes: domestic (drinking, food preparation, bathing and washing), commercial (construction and restaurants), irrigation and industrial (processing, cleaning, transportation, dilution and cooling in manufacturing facilities).

But going forward, you may get to use water for creating financial wealth as well.

As the demand for water is growing multifold, the natural resource has become a scarce commodity. When anything turns a rare commodity, it is but natural for the market mavens to move in.

Water futures

The Chicago Mercantile Exchange or the CME Group last year launched an innovative product — Nasdaq Veles California Water Index (NQH2O) — futures for public trading.

“The benchmark powering this innovative, cash-settled water futures contract uses rights leases and sales transactions across the five largest and most actively traded regions of California to provide a volume-weighted average price of freshwater in the region,” it said at the time of the launch.

“A liquid, transparent futures market will help to create a forward curve for this vital resource so water users can hedge price risk. Further, these futures contracts allow agricultural producers to plan ahead for changing cost of the water they need for large-scale irrigation, while also allowing a commercial end user, like a manufacturer, to better navigate business and financial risks when water prices fluctuate,” the exchange said.

BNP Paribas Aqua Fund

To quench Indian investors’ thirst, BNP Paribas recently launched the Aqua Fund of Fund. The primary investment objective of the scheme was to seek capital appreciation by investing in the Luxembourg-listed BNP Paribas Funds Aqua scheme.

This global mutual fund invests in companies that conduct business in water and related sectors which are picked based on the quality of their financial structure and earnings potential.

Such firms are picked across countries. Some of the companies to which the fund has exposure are Pennon Group, Idex Corp, Georg Fischer, Agilent Technologies, Pentair Plc. Trimble Inc and American Water Works.

With water gaining focus, it is likely to see innovative initiatives that will drive growth.

This is just the beginning. Going forward, there would be many more funds, including exchange-traded funds, and innovative products would be launched on water. Indian investors cannot remain off the shore. However, the moot question is whether water as a trade-able commodity will help all living beings or just financial institutions and investors.

Published on May 07, 2021

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