KBI Water Fund

 Video commentary on the fund

 

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Investors can relate to Water

In an uncertain world we draw comfort from investing in assets where there is a real and sustainable need. Nowhere does this statement better apply than the Water opportunity, which invests across a spectrum of ‘solution providers’ to the Water issues facing the planet. Other commodities, goods or services can be cancelled when times get tough, or substituted for something else. There is simply no substitute for Water 

Water scarcity – fixed supply, increasing demand

We all know the most basic problem; the world’s population is expanding by 200,000 people every day and the supply of Water is not1. The increase is roughly equivalent to adding a city greater than the size of Norwich every 24 hours2. Historically demand for Water has grown at twice the population growth rate. The world needs imaginative ways to access, desalinate, transport, conserve, clean and monitor Water usage

Infrastructure investment – Water will dominate

To tackle these problems an astonishing USD 22 trillion3 will be spent on Water infrastructure by 2030. This is estimated to equate to more than half of total global infrastructure spend3, creating a myriad of new opportunities. Developed markets are replacing ageing infrastructure whilst emerging markets are often installing it for the first time. Leading Water infrastructure manufacturers are benefitting globally from this demand

Cutting edge Water technologies

Water is not a dull and homogenous utility sector. Much of the technology being applied to this expanding area, rivals biotechnology and IT as growing companies find ‘cutting edge’ solutions to the challenges we face - managing one of the world’s most important resources

Potential yield opportunities

Yield is available in the Water stock universe; for example, York Water Company Pennsylvania has paid an attractive dividend consistently every quarter for approaching two centuries, since 18164

Water is not a niche story

Many people perceive Water to be a niche investment opportunity that’s just about investing in UK utilities. This couldn’t be further from the truth. KBI’s Water Fund is a globally diversified equity portfolio with multiple long-term drivers, combined with diverse end markets and revenue streams

Water touches almost every sector, every country, developed and emerging markets. Leading Water pump companies could be selling pumps to chemical plants in Japan; to pump Water from China’s South to the populated areas in the North; from the ground to the 164th floor of the Burj Khalifa in Dubai; or to supply the construction and industrial boom in the US

KBI’s performance track record

Few fund managers can claim experience, resource or track record in the Water space, however KBI can claim all three. Since December 2000 KBI have delivered outperformance in excess of 4% pa and added value in 11 of those 14 years against the MSCI World Index but with a beta of around 1.00* - demonstrating the team’s stock picking abilities and the growth opportunities afforded by investing in Water (past performance is not a guide to future performance)

Why does the KBI Water Fund outperform?

The KBI Water fund has strong earnings growth when compared to some traditional portfolios and benchmarks, such as the MSCI World Index. Even in specialist portfolios such as infrastructure and technology funds within the IA Specialist Sector, managers may not be able to capture the strong earnings growth found in many of KBI’s Water infrastructure and Water technology holdings

The growth and valuation opportunities available in the space make a compelling argument for allocating to it

Will conventional funds capture the Water story?

Some may believe they capture the Water opportunity through broad global, country or regional equity funds. Research from KBI however suggests that the overlap between the KBI Water Fund and the MSCI World Index is less than 1%*. To benefit from investing in Water KBI believe you have to take the direct approach through a pure Water Fund. The KBI Water Fund touches many sectors, industries and countries and is therefore, in our view, a diversified global equity fund in its own right

Where in a portfolio may this fund be considered?

Most thematic funds require an asset allocator to be bullish on a particular asset class. To buy a gold fund you probably have to be aggressively confident on gold. To buy an energy fund you are likely to be bullish on the oil price. We feel investing in Water is different and believe Water is a growth theme of the next two decades. A long-term allocation to Water could be an attractive source of alpha and diversification to a portfolio for many years to come

Source: *KBI, Datastream, MSCI 31/12/2014

1World Population Balance, http://www.worldpopulationbalance.org/faq

2Wikipedia, http://en.wikipedia.org/wiki/Norwich

3Jacobs Securities, Global Water Primer, April 2011, referencing Booz Allen Hamilton

4The York Water Company http://www.yorkwater.com/FactSheet.pdf

 

 

 

 

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KBI produce some terrific research. Unlike some houses, they don’t feel the need to write commentary for its own sake. There may be months where they have nothing to add to the debate but when they produce something, it is definitely worth making a coffee, printing a copy and setting aside 20 minutes to read it

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