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Global water crisis: Investing in water

Key takeaways

  • The world is facing critical water shortages, a situation that is likely to get worse with a booming global population and climate change.
  • The goal of providing safe, clean water for people and agriculture is critical to the planet—and one that many companies are working on.
  • Water treatment, smart infrastructure, and efficient delivery are key areas where companies are working to provide solutions.

The water on the planet now is the same water that dinosaurs were drinking—and it's the only water that will ever be here.

Oceans account for 97% of Earth's water. Most, 2.5%, of the planet's fresh water, is locked in the polar ice caps, in the soil, or irreversibly polluted. That means, as of now, 0.5% of all the water on the planet is potentially usable by people, animals, and plants.

"The global water supply is finite and there is no new water," says Janet Glazer, portfolio manager for the Fidelity® Water Sustainability Fund (). The fund invests in companies that are helping drive greater efficiency, extending the lifecycle, improving infrastructure, and developing disruptive technologies.

Viewpoints caught up with Glazer to talk about the potential investment opportunities in water and why doing good for the planet can be good for investors.

What are the trends driving the increasing need for water sustainability?

I think we're at a tipping point when it comes to global water scarcity. The 3 main problems exacerbating the crisis of water scarcity include the lack of sufficient infrastructure, a booming population, and climate change. These factors are going to put an enormous strain on an already fragile water system.

The world's population is expected to increase by 2 billion over the next 30 years to almost 10 billion. People are already dying from lack of clean water and sanitation and the situation is expected to get worse.

  • One in 3 people (2.2 billion) lack access to safe, readily available water.1
  • Six in 10 lack safely managed sanitation.2
  • 2 million people, mostly children, die every single year either from lack of water or from disease they got from tainted drinking water.3
  • 2.7 billion people live without access to fresh water at least 1 month per year.4

The good news is that there has been some progress. Since 2000, 1.8 billion people have gained access to drinking water services and 2.1 billion have gotten access to basic sanitation services.5

But severe climate issues are exacerbating the risk. For example, Lake Mead, North America’s largest manmade water reservoir, serves as the primary water source for many states, including California, Nevada, Arizona, and New Mexico. It is now at unprecedented lows in terms of capacity, causing widespread negative impact on both people and agriculture. The same factors impacting the global water scarcity issues—drought, climate change, and a massive demand pull on a precious resource—are causing a dire situation in the south and west United States.

Because of situations like this, we're seeing increasing demands from governments around the world asking for help—in particular, help from private companies. That's because there's an immediate need to address the health and safety of global populations while public budgets and spending are under pressure.

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Are there any specific companies and industries that you think stand to benefit? And why?

Neptune Technology is a business inside of Roper Technologies (). They are a leader in the smart water metering space and serve more than 4,000 water utilities across North America.

Water meters are remarkably complex and there has been a migration from manually reading meters to automatically reading meters. AMI (Advanced Metering Infrastructure) involves digital meters that have 2-way communication so utilities can communicate with consumers to help them save energy and reduce costs. A smart water network can even help find leaks or tampering.

This is a big opportunity as there are only a handful of big players that dominate. In fact, 40% of the space has yet to be penetrated. So the growth runway is there.

What are companies doing to help solve the water scarcity problem? What more can they do?

There are so many different companies globally helping to combat the water-scarcity crisis—from a variety of sectors too. They are developing new treatment technologies, smart water networks, desalination systems, non-revenue water products, metering solutions, outsourcing systems, and testing equipment.

Water treatment involves the treatment of water and wastewater through its life cycle to remove harmful contaminants and the buildup of harmful deposits.

Evoqua () is an example of a company that may benefit from the need to remove chemicals including PFAS (aka "forever chemicals") from our water. They have a full suite of technologies such as reverse osmosis, ion exchange, granular active carbon, and oxidation processes. This is a growing pipeline of opportunity for them with heightened awareness from government.

In terms of smart software and digital applications, Danaher () is one example. It owns Hach, which produces the Claros water software platform that provides water intelligence for customers to help with regulatory compliance, cost savings, and equipment maintenance. Their system enables customers to collect, access and share data, as well as remotely manage treatment processes efficiently in real time, 24/7. The last example has to do with smart infrastructure. Due to insufficient and old infrastructure, about 30%– 40% of water worldwide becomes non-revenue water according to the International Energy Agency. Non-revenue water is water that is lost due to leaks in the pipes, unauthorized use, corruption, or inefficiencies. This is where a SmartBallTM technology from a company called Xylem () comes in.

In 2015, Rand Water, the largest water utility in Africa embarked on its largest pipeline condition assessment investigation, examining a little over 2,200 kilometers of Rand's high pressurized pipeline network. They used Xylem's SmartBallTM, which is a multi-sensor tool used to detect and locate the acoustic signatures related to leaks and gas pockets. It helped find a solution to a costly problem that was impacting Africa's largest water utility.

What does this mean in terms of growth and profitability?

It's estimated that industry revenue could grow 4%–6% per year for a long time and, I think, companies that are able to innovate and provide new science, technology, and intelligence-enabled solutions will grow by multiples of that rate.

It encompasses a global and diverse set of businesses. I think quality companies with strong management teams working on the high end of the water technology curve are set to dominate with stronger growth, margins, and valuations over time.

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What do you look for in a company you're considering for the fund?

There are a lot of things I think about when considering what to own in the fund but I think there are 4 main elements I focus on.

  1. Capital allocation. I look at how well the company generates free cash flow and how well it has allocated capital throughout its history.
  2. Management strength and company processes, values, and culture. I'm aiming to find businesses where there is a very disciplined approach with a lot of autonomy to enable nimbleness.
  3. Industry dynamics and types of businesses the companies play in. In particular, I think about how wide moats are, how commoditized the businesses are, how durable the growth is, how much capital is needed to grow, how do they compete and segment their markets—and how all of this has resulted in a strong financial model.
  4. Innovation and how they think about existing competencies versus disrupting new norms. And are they being surgical in the areas they go after vs. a holistic "build it and they will come" mentality.

Are there any specific risks associated with investments in water sustainability?

While the secular theme of water scarcity is powerful, the companies do have cyclicality by virtue of the end markets they are exposed to as well as geographies and regions where they have a presence. I try to minimize those risks in the fund with deep, fundamental research.

Water investing has provided a favorable risk/return

Risk/return: April 2005 to June 2020
The data in the chart is described in the text.
Past performance is no guarantee of future results. You cannot invest directly in an index. Index performance is not meant to represent that of any Fidelity fund. Source: Morningstar Direct as of 06/30/20. See disclosures for index definitions.

Bonds: Bloomberg Barclay's Aggregate; High yield bonds: ICE BofA US HY; Domestic equities: S&P 500; International equities: MSCI EAFE; Small cap: Russell 2000; Emerging markets: MSCI EM; Global: Dow Jones Global; Real Estate: FTSE NAREIT All Equity REITs; Gold: S&P GSCI Gold; Water: S&P Global Water

What is your outlook for the water industry and its quest to help solve the world's water challenges?

I have a very positive outlook for the water industry as it relates to growth of innovation and new technologies that will aid in solving some of our biggest water challenges like water scarcity, resilience, and affordability.

I think Americans tend to focus on the US, but when you expand the aperture to the globe, in countries like India or China where water is a top priority, you see the government commitments to investing in both operating and capital expenditures.

That being said, my optimism is grounded in a very realistic view on the global crisis that is in front of us today, making the call to action more important now than it ever has been.

Fidelity® Water Sustainability Fund: Top 10 holdings











As of April 30, 2023. The top 10 holdings made up 69.98% of the total portfolio as of April 30, 2023. Any holdings, asset allocation, diversification breakdowns or other composition data shown are as of the date indicated and are subject to change at any time. They may not be representative of the fund's current or future investments. The top 10 holdings do not include money market instruments or futures contracts, if any. Depository receipts are normally combined with the underlying security. Some breakdowns may be intentionally limited to a particular asset class or other subset of the fund's entire portfolio, particularly in multi-asset class funds where the attributes of the equity and fixed income portions are different.

Janet Glazer
Sector Portfolio Manager
Janet Glazer is a sector leader and portfolio manager in the Equity division at Fidelity Investments.

In this role, Ms. Glazer is the global cyclicals sector leader and portfolio manager on the Fidelity Water Sustainability Fund, Select Industrials Portfolio, Fidelity Advisor Industrials Fund, and the VIP Industrials Portfolio. She is also responsible for the coverage of multi-industrial companies within the industrials sector.

Prior to assuming her current responsibilities, Ms. Glazer worked as a research analyst at Fidelity Institutional Asset Management. In this capacity, she was responsible for equity research coverage of U.S. and Latin American industrials, including conglomerates, multi-industry, aerospace and defense, machinery, building products, transports, professional services, engineering and construction, transportation logistics, and transportation infrastructure. Previously, Ms. Glazer analyzed the global energy sector, researching alternative energy, refining, and coal equities. She joined Fidelity in 2010 as a research analyst intern covering Asian technology.

Before joining Fidelity, Ms. Glazer was a senior manager at E*TRADE Financial, where she oversaw global trading and portfolios.

Ms. Glazer earned her bachelor of science degree in humanities, with a focus on behavioral economics, from the Massachusetts Institute of Technology and her master of business administration degree from MIT's Sloan School of Management.

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Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully. 1. "1 in 3 people globally do not have access to safe drinking water – UNICEF, WHO," World Health Organization, June 18, 2019, 2. "Sustainable Development Goals: Goal 6 is to ensure access to water and sanitation for all," United Nations, 3. "Threats: Water scarcity," World Wildlife Organization, 4. "Threats: Water scarcity," World Wildlife Organization. 5. "1 in 3 people globally do not have access to safe drinking water – UNICEF, WHO," World Health Organization, June 18, 2019.

Views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.

As with all your investments through Fidelity, you must make your own determination whether an investment in any particular security or securities is consistent with your investment objectives, risk tolerance, financial situation, and evaluation of the security. Fidelity is not recommending or endorsing this investment by making it available to its customers.

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.

The water sustainability industry can be significantly affected by demographic, irrigation and industrial usage trends, viability of infrastructure projects, conservation practices, pollution, waste, and environmental factors, including weather, droughts, flooding, as well as the performance of the overall economy, interest rates, consumer confidence, and the cost of commodities. Regulations and policies of various domestic and foreign governments may affect water usage, contamination, and reusability. The fund may have additional volatility because of its narrow concentration in a specific industry. Non-diversified funds that focus on a relatively small number of stocks tend to be more volatile than diversified funds and the market as a whole.

Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.

Index definitions
Bloomberg Barclays US Aggregate Bond Index is a broad-based, market-value-weighted benchmark that measures the performance of the investment grade, US dollar-denominated, fixed-rate taxable bond market. Sectors in the index include Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS.

ICE BofA US High Yield Index is a market capitalization–weighted index of US dollar denominated below investment grade corporate debt publicly issued in the US domestic market. Qualifying securities must have a below investment grade rating (based on an average of Moody's, S&P and Fitch). The country of risk of qualifying issuers must be an FX-G10 member, a Western European nation, or a territory of the US or a Western European nation. The FX-G10 includes all Euro members, the US, Japan, the UK, Canada, Australia, New Zealand, Switzerland, Norway and Sweden. In addition, qualifying securities must have at least one year remaining to final maturity, a fixed coupon schedule and at least $100 million in outstanding face value. Defaulted securities are excluded.

S&P 500 Index is a market capitalization–weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent US equity performance.

MSCI EAFE Index is a market capitalization-weighted index that is designed to measure the investable equity market performance for global investors in developed markets, excluding the US & Canada.

Russell 2000 Index is a market capitalization–weighted index designed to measure the performance of the small-cap segment of the US equity market. It includes approximately 2,000 of the smallest securities in the Russell 3000 Index.

MSCI Emerging Markets Index is a market capitalization-weighted index that is designed to measure the investable equity market performance for global investors in emerging markets.

The Global Dow Index is an equal-weighted stock index designed to measure the stock performance of 150 leading companies from around the world. FTSE NAREIT All Equity REITs Index is a market capitalization–weighted index that is designed to measure the performance of tax–qualified Real Estate Investment Trusts (REITs) that are listed on the New York Stock Exchange, the NYSE MKT LLC, or the NASDAQ National Market List with more than fifty percent of total assets in qualifying real estate assets secured by real property. Mortgage REITs are excluded.

The S&P GSCI Gold Index, a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark tracking the COMEX gold future. The S&P Global Water Index provides liquid and tradable exposure to 50 companies from around the world that are involved in water related businesses. To create diversified exposure across the global water market, the 50 constituents are distributed equally between two distinct clusters of water related businesses: Water Utilities & Infrastructure and Water Equipment & Materials.

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