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.