Water as an invest­ment theme: sector trends and portfolio develo­p­ments

The Tareno Global Water Solutions Fund achieved a return of +5.14% (W‑EUR tranche) in the reporting period, thus making up for a large part of the previous month’s losses.

Regula­tion, finan­cing and industrial demand

In April, a key issue in the water industry once again came to the fore: the finan­cing of urgently needed infras­truc­ture invest­ments. The industry report “State of the Water Industry 2026” by the AWWA shows that many water pipes, treat­ment plants and supply systems need to be moder­nized, but at the same time many suppliers are under finan­cial pressure. Many compa­nies are still unable to fully cover their running costs through charges and tariffs. This is an important develo­p­ment for investors: the need for invest­ment remains high and intact in the long term, but new projects are unlikely to be imple­mented at the same speed every­where.

The US Environ­mental Protec­tion Agency (EPA) also announced additional funding for waste­water and rainwater projects in April. The appro­xi­m­ately USD 80 million made available is manageable compared to the overall requi­re­ment. However, it shows that invest­ments in the moder­nization of water infras­truc­ture continue to be supported politi­cally.

The water requi­re­ments of data centers are also becoming incre­a­singly relevant. Accor­ding to Global Water Intel­li­gence, concerns about water availa­bi­lity have already led to tempo­rary restric­tions on new construc­tion projects in some regions of the USA. This means that the topic of water effici­ency is becoming incre­a­singly important for compa­nies that offer solutions for the reuse, monito­ring and more efficient use of water.

Cross-portfolio view

The current reporting season conti­nues to show a similar picture: Utili­ties around the world are incre­a­singly investing in the moder­nization of their water infras­truc­ture. In the UK, United Utili­ties announced invest­ments of around GBP 2.5 billion in the expan­sion and renewal of its water networks. The Brazi­lian water utility SABESP is planning invest­ments of around BRL 20 billion for 2026, while California Water Service Group and Middlesex Water are also incre­a­sing their spending on pipelines, networks and water treat­ment.

Compa­nies that plan, build or supply technical equip­ment for water projects benefit from this develo­p­ment. These include enginee­ring compa­nies such as Tetra Tech and Arcadis as well as pump and compo­nent manufac­tu­rers such as Gorman-Rupp and IDEX Corpo­ra­tion. At Tetra Tech, this has already been reflected in the quarterly figures: The UK water business recently grew by 12%, driven by an incre­a­sing number of new infras­truc­ture projects.

The digita­lization of the water sector also conti­nues to gain momentum. Veolia highlighted digital water manage­ment solutions at its strategy presen­ta­tion in April, Itron again increased its recur­ring software and analy­tics revenue and SABESP is driving the roll-out of smart water meters to reduce network losses and improve monito­ring. All of this shows that utili­ties are incre­a­singly investing not only in physical infras­truc­ture, but also in software, sensors and effici­ency solutions that reduce opera­ting costs and improve network perfor­mance.

PFAS regula­tion continued to estab­lish itself as an important portfolio topic. Solution provi­ders such as Veolia and Veralto reported increased activi­ties in this area. Utility compa­nies are upgrading their treat­ment plants to meet the stricter water quality requi­re­ments; techno­logy provi­ders are benefiting from the growing demand for corre­spon­ding filtra­tion and treat­ment solutions.

Not all the news this month was positive. Kemira experi­enced currency headwinds and disrup­tion from the tensions surroun­ding the Iran conflict; Sulzer reported delays to some projects in the Middle East; and A. O. Smith conti­nues to face weaker demand in China. At this stage, these pressures appear manageable and are unlikely to funda­men­tally change the long-term outlook.

Portfolio positio­ning

The develo­p­ments in April reinforce our balanced portfolio approach. The combi­na­tion of more defen­sive water utili­ties and infras­truc­ture opera­tors on the one hand and more cyclical industrial and techno­logy stocks on the other gives the portfolio stabi­lity across diffe­rent market phases.

We are currently in the middle of the reporting season. Based on the results available, we see no signs that the positive momentum of April is slowing down signi­fi­cantly. Nevert­heless, the geopo­li­tical environ­ment remains diffi­cult to assess, parti­cu­larly with regard to energy prices, supply chains and exchange rates. We continue to keep a close eye on regula­tory decis­ions in the USA, finan­cing develo­p­ments in the UK water sector and the pace of margin increases at compa­nies exposed to China.