Tareno Water Fund: Record results and tailwind in February 2026

Quality of results: broadly convin­cing water compa­nies

The compa­nies most closely associated with the water thesis: Veolia, Sulzer, Xylem, Veralto and the majority of water utili­ties, almost univer­sally delivered record or better-than-expected results. Recur­ring themes are steady volume growth in the municipal drinking water and waste­water markets, incre­a­sing margins through opera­ting leverage and price enforce­ment, and robust free cash flow genera­tion. This confirms that the struc­tural demand drivers – ageing networks, water scarcity, stricter regula­tion – remain intact and are reflected in the finan­cial results.

Municipal infras­truc­ture spending is accele­ra­ting

Several US compa­nies (Mueller Water Products, Gorman-Rupp, IDEX, Essen­tial Utili­ties, California Water Service) reported resilient or growing municipal markets, supported by US infras­truc­ture legis­la­tion. Regulated utili­ties are investing at record levels (Essen­tial Utili­ties: USD 1.4 billion, California Water Service: USD 517 million). In the UK, Severn Trent confirmed record invest­ments under the AMP8 program at the upper end of the forecast. This pattern of increased public water infras­truc­ture invest­ment across geogra­phies is a strong confir­ma­tion of the thematic premise.

Strategic conso­li­da­tion and techno­lo­gical integra­tion

Three compa­nies have completed or announced signi­fi­cant strategic transac­tions: the USD 3 billion acqui­si­tion of Clean Earth by Veolia, the share­holder approval of the merger of Essen­tial Utili­ties and American Water and the USD 1 billion acqui­si­tion of NDS by Advanced Drainage Systems. In addition, Stantec was named preferred bidder for the Scottish Water contract. Kemira acquired SIDRA Wasser­chemie, a German chemical manufac­turer, to streng­then its Water Solutions division. The overall message is clear: the water sector is conso­li­da­ting, with a focus on size, techno­lo­gical exper­tise and geogra­phical diver­si­fi­ca­tion.

Techno­logy and water issues are becoming incre­a­singly intert­wined. Itron’s record order backlog in Outcomes (metering infras­truc­ture software), Veral­to’s acqui­si­tion of In-Situ in water analy­tics and the numerous references by company execu­tives to the water needs of data centers illustrate that digita­lization and advanced analy­tics are incre­a­singly embedded in water infras­truc­ture – with positive effects on margins, asset utilization and recur­ring revenues.

Devia­tions and risks

Not all invest­ments performed equally well. Kemira and Arcadis reported real funda­mental headwinds: Kemira due to weakness in the pulp and paper market, Arcadis due to a change in manage­ment and project under­per­for­mance in Canada and in the real estate sector. For both positions, the short-term earnings trend is decli­ning and the manage­ment’s ability to execute is being put to the test. Sika and Aalberts are facing cyclical headwinds in the construc­tion and semicon­ductor sectors respec­tively, although their strategic positio­ning remains intact. Toray’s EV battery impair­ment generates headlines unrelated to water, but draws atten­tion to conglo­me­rate risk. Masco’s signi­fi­cant tariff exposure brings earnings risks that are not water-specific. The capital market days of Wiener­berger and Georg Fischer failed to convince investors, as the recovery of the European construc­tion market is likely to be a long time coming.

Water industry and regula­tory environ­ment

The earnings picture at portfolio level unfolded against the backdrop of a month of signi­fi­cant regula­tory and sector-specific develo­p­ments that underpin the struc­tural invest­ment thesis.

In the EU, the Council formally adopted a direc­tive on February 17 to update the priority substance standards for surface and ground­water, which extends monito­ring to pharmaceu­ti­cals, PFAS, bisphe­nols and pesti­cides and intro­duces cumula­tive risk assess­ments for mixtures of chemicals for the first time.

The imple­men­ta­tion deadlines are 2033 (revised surface water values) and 2039 (full scope). Bluefield Research estimates European PFAS-related expen­diture on drinking water treat­ment alone at EUR 3.6 billion in the period 2026–2036 – with immediate benefits for compa­nies such as Veolia, Kemira, Kurita and Veralto. In a related ruling, the General Court of the EU dismissed claims brought by the pharmaceu­tical and cosme­tics industries against the extended producer respon­si­bi­lity provi­sions in the recast Urban Waste Water Direc­tive and confirmed the obliga­tion for produ­cers to bear at least 80% of the costs of the fourth treat­ment stage.

EurEau met with Environ­ment Commis­sioner Roswall on February 16 and highlighted an annual invest­ment gap of EUR 23 billion in the EU water sector under the next Multi­an­nual Finan­cial Frame­work (2028–2034).

In the US, the American Water Works Associa­tion ‘s 2026 outlook highlighted the combi­na­tion of infras­truc­ture renewal needs (the EPA estimates USD 1.3 trillion over 20 years) and expiring IIJA funding as the sector’s defining finan­cial chall­enge.

GWI and XPV Water Partners released a joint report on February 19 that identi­fies four high-growth invest­ment themes for 2026–2030: mobile treat­ment systems, water-efficient data center manage­ment, advanced conta­mi­nant removal and water reuse. Roland Berger’s Water M&A Report confirmed that global transac­tion volumes in the water sector increased by 8% in 2025, rever­sing a three-year decline.

Outlook

February 2026 confirmed our core thesis: Struc­tural demand for water infras­truc­ture remains steady, the stron­gest quality compa­nies in the portfolio continue to add value, and strategic conso­li­da­tion is creating larger, more powerful platforms with stronger techno­lo­gical and geogra­phic reach.

During the reporting period, the W‑EUR tranche returned +3.66%, reflec­ting the resili­ence of the portfo­lio’s core holdings. The macroe­co­nomic environ­ment remains challen­ging – the ongoing war in the Middle East adds another layer of uncer­tainty to an environ­ment already charac­te­rized by tariff discus­sions and general economic concerns and inevi­tably creates volati­lity on the global equity markets.

As long-term investors, we are aware that short-term upheavals are an inevi­table part of the markets and that such phases have histo­ri­cally offered attrac­tive entry oppor­tu­ni­ties in high-quality compa­nies. We remain invested and construc­tive: Ageing infras­truc­ture, tighter regula­tion, techno­lo­gical innova­tion and incre­a­sing global water stress continue to support the long-term demand picture. We are convinced that disci­plined portfolio construc­tion and a focus on quality will continue to create added value in the future.