Water funds on the rise: Strong perfor­mance in May 2025

Getting back on your feet after a fall – How water stocks offer stabi­lity and oppor­tu­ni­ties in a risk-prone market environ­ment

The stock markets staged an impres­sive recovery in May, driven by strong momentum from the US, Europe, and Japan. Growth stocks and small and mid-cap compa­nies benefited from good corpo­rate results and a notice­ably improved mood. In the US, the S&P 500 rose by more than 6%, with the techno­logy, industrial, and consumer goods sectors posting signi­fi­cant gains. European equities also posted solid returns, supported by hopes that the tariff dispute would not escalate and stable earnings expec­ta­tions. The Japanese markets were also well supported by identical factors. In this risk-friendly environ­ment, defen­sive sectors lagged behind. Investors clearly regained confi­dence in equities, parti­cu­larly in small and medium-sized compa­nies with solid funda­men­tals.

The Tareno Global Water Solutions Fund achieved a solid perfor­mance of +4.53% (W Euro Tranche) in May.

Away from the noise: water stocks deliver in volatile times

The most recent earnings season ended in May with results that signi­fi­cantly exceeded our expec­ta­tions. The water sector proved to be a resilient haven in a highly volatile geopo­li­tical environ­ment:

• Kurita Water (Japan): The specia­list in ultra­pure water systems raised its full-year forecast and secured two major projects in the US and Europe – clear signs of a rebound in capital spending in the semicon­ductor industry.
• Watts Water (US): With earnings well above expec­ta­tions and stable forecasts, Watts is showing how to navigate successfully in a US construc­tion market charac­te­rized by high interest rates. A weaker US dollar is provi­ding additional tailwind for the company, which has a strong presence in Europe.

Down but not out: a comeback in the making

Spending cuts by US federal agencies hit many environ­mental consul­ting firms hard in the first quarter of 2025, with Stantec, WSP, Arcadis, and Tetra Tech in parti­cular coming under pressure to reduce costs. But the tide is turning:

• Tetra Tech (USA) lost 13% of its order backlog follo­wing drastic cuts to USAID projects, but won new, high-margin contracts.
• Stantec, WSP, and Arcadis are reporting a similar recovery, with rising order volumes and share price gains.

The fact that govern­ment orders are picking up again, especi­ally in the US, is a strong sign. The sector made the stron­gest contri­bu­tion to perfor­mance in the reporting period – a comeback that should not be overlooked.

Our month in the water sector

We met with several compa­nies in our universe and would like to share three highlights:

1. ACEA (Italy): The leading Italian water utility remains a top pick despite its already strong perfor­mance. Higher invest­ments in the network to reduce water losses and a possible reduc­tion in the Suez stake promise further price gains.
2. Webuild (Italy): Synony­mous with global infras­truc­ture activi­ties, from roads and tunnels to high-speed trains, and a world market leader in water infras­truc­ture. With Fisia Italim­pianti, Webuild covers the entire cycle from desali­na­tion to waste­water treat­ment.
3. Georg Fischer (Switz­er­land): The planned takeover of the VAG Group from finan­cial investor Aurelius streng­thens Georg Fischer in the metal fittings business for water networks. The imminent comple­tion of the sale of the Machi­ning Solutions division is likely to be another driver for the share price.

Holding all the cards – targeted selec­tion and liqui­dity reserves in volatile markets

What’s next? The strong recovery despite ongoing uncer­tainty shows that markets love good news. We remain under­weight in US equities, where valua­tions remain challen­ging. Europe, on the other hand, is seeing growing inflows, not least thanks to Mario Draghi’s compe­ti­tive initia­tives, which should boost infras­truc­ture invest­ment. We remain cautiously optimi­stic and are maintai­ning a liqui­dity buffer of around 6% in case the roller­co­a­ster ride conti­nues. And who knows: sometimes a little cash is the best safety net when the next crash comes.

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