Invest­ment Needs Meet Demand

In August, surpri­singly strong corpo­rate earnings provided a boost to the stock markets. At the same time, the ongoing conflict with Iran kept energy prices high and severely restricted shipping traffic through the Strait of Hormuz. The resul­ting infla­tion concerns inten­si­fied upward pressure on long-term interest rates. European stocks moved largely sideways overall, while the S&P 500 gained another 2.6% and the Japanese and Korean markets recovered from their July correc­tion. In this mixed environ­ment, stock selec­tion was more important than the general market trend.

Two Signals from the Global Water Sector

Two develo­p­ments in August highlighted the diverse ways in which invest­ment needs arise in the water sector. On August 28, Smart Water Magazine focused on the finan­cing of global sanita­tion. Appro­xi­m­ately 3.4 billion people continue to live without safely managed sanita­tion; at the same time, accor­ding to World Health Organization estimates, every U.S. dollar invested yields an economic benefit of appro­xi­m­ately USD 5.50. Nevert­heless, fewer than 13% of count­ries have suffi­cient finan­cial and human resources to imple­ment their own water plans. There­fore, it is not only the available capital that is crucial, but also a sustainable project struc­ture. For two waste­water treat­ment plants in Makkah (Saudi Arabia), systems for reusing treated waste­water account for about 30% of the total costs. In Brazil, by contrast, a priva­tization package compri­sing three lots worth appro­xi­m­ately USD 1.2 billion was canceled after only one bid was received for a single lot and the required guaran­tees were not provided. For investors, the message is clear: demand is high, but capital will only flow if revenue, risks, and guaran­tees are convin­cingly addressed. The second signal came from the drought. Thames Water reported on August 24 that more than 75,000 acoustic sensors are now in use in the pipeline network (up from 21,000 in 2025). Combined with AI-powered satel­lite data, these sensors helped the utility detect 88% more leaks than in the previous year. At the same time, the network conti­nues to lose appro­xi­m­ately 570 million liters of treated water per day. This example illustrates how the combi­na­tion of aging infras­truc­ture and water scarcity is accele­ra­ting the adoption of digital monitoring—and thereby driving demand for related techno­logy.

Company News

The poten­tial conso­li­da­tion among enginee­ring consul­ting firms remained a focus in August. WSP Global confirmed during the Q2 earnings call on August 6 that Arcadis had also rejected the second proposal, which was submitted on July 23. The offer amounted to EUR 51.50 per Arcadis-share and was to be paid for roughly half in cash and half in WSP shares; an initial proposal of EUR 48.50 had also been rejected previously. Strate­gi­cally, a combi­na­tion would comple­ment the geogra­phic reach and exper­tise of both compa­nies. Arcadis However, it continued to view the company as underva­lued and pointed to the risks associated with the high equity compo­nent, WSP’s higher debt, and the integra­tion. These concerns are under­stan­dable, especi­ally since WSP only completed the CAD 4.6 billion acqui­si­tion of TRC has been finalized. As of the end of August, there was neither an agree­ment nor a formal public offer. Both compa­nies are repre­sented in the fund.

In the U.S. utili­ties sector, the planned merger of American Water Works and Essen­tial Utili­ties took a step forward. On August 17, the compa­nies announced that the antitrust waiting period had expired on August 14. Approvals from Kentucky, Ohio, and Virginia had been received by that date; and in Texas, a preli­mi­nary agree­ment had been reached. On August 28, the parties involved reached an agree­ment in Pennsyl­vania, which still requires approval from the state regula­tory autho­rity. The transac­tion is still expected to close by the end of the first quarter of 2027.

Cyber­se­cu­rity also came more into the spotlight in August. Follo­wing coordi­nated attacks on more than 30 municipal water systems in Minne­sota, the American Water Works Associa­tion (AWWA) urged increased vigilance. In this context, Senators Amy Klobuchar and Adam Schiff intro­duced the Water Cyber Shield Act. The bill aims to give the U.S. Environ­mental Protec­tion Agency (EPA) clearer regula­tory autho­rity and provide additional federal funding to protect local water and waste­water systems. For provi­ders of monito­ring and control techno­logy, cyber­se­cu­rity is thus incre­a­singly becoming an integral part of infras­truc­ture invest­ments.

Earnings Season at a Glance

The earnings season was marked by strong results from North American water infras­truc­ture compa­nies. Mueller Water Products posted a record quarter; the adjusted EBITDA margin rose by 440 basis points to 27.1%, driven by steady demand for municipal repairs and repla­ce­ments. Advanced Drainage Systems increased revenue by 21% in the first quarter to just over USD 1 billion. In the non-residen­tial sector, commer­cial buildings, logistics proper­ties, and data centers remained parti­cu­larly robust. Watts Water reported record revenue of USD 763 million in the second quarter. Revenue from data centers more than tripled compared with the previous year and accounted for 8% of conso­li­dated revenue in the first half of the year. WSP Global reported net revenue of CAD 4.27 billion (+22.9%), adjusted EBITDA of CAD 815 million (+28.8%), and a record order backlog of CAD 20.1 billion. Manage­ment subse­quently raised its finan­cial outlook for 2026.

In Latin America, SABESP increased its adjusted revenue from water and waste­water services by 6.7%. However, higher costs for services and treat­ment chemicals weighed on margins. Capital expen­dit­ures in the first half of the year rose by 15.6% to BRL 7.5 billion as the company continued to accele­rate the expan­sion of its supply network. In Europe, Geberit reported net revenue of CHF 1,711 million for the first half of the year on August 19. This repres­ents an increase of 2.8% in Swiss francs and 5.9% in local curren­cies. Earnings per share rose by 10.9% on a currency-adjusted basis.

Three themes ran throug­hout the earnings season: continued robust demand from munici­pa­li­ties, the growing contri­bu­tion from data centers, and, overall, disci­plined margin manage­ment despite higher costs.

Fund Perfor­mance

The Tareno Global Water Solutions Fund ended August with a return of ‑0.79% (Tranche W‑EUR). The European holdings made a signi­fi­cantly positive contri­bu­tion. This was offset by price declines in Japanese stocks and SABESP.

The three stron­gest positive contri­bu­tions came from Arcadis, GEA Group and Georg Fischer. Each position contri­buted slightly more than a quarter of a percen­tage point to the fund’s return. Arcadis reported organic order growth of 13.5% for the second quarter and a record order backlog of EUR 4.0 billion. The stock received an additional boost from ongoing takeover specu­la­tion surroun­ding WSP Global. GEA raised its full-year forecast for revenue and margin and announced a share buyback program of up to EUR 500 million. At Georg Fischer This was supported by the half-year results already released in July, which included a high volume of new orders in the semicon­ductor and water infras­truc­ture sectors. In August, however, there were hardly any new company-specific announce­ments.

SABESP was the largest contri­butor to the decline. Despite progress in expan­ding service coverage, margin pressure and signi­fi­cantly higher net debt were the main concerns in the second quarter. Kurita Water Industries also saw its stock price decline. Although revenue and order intake rose sharply, additional costs associated with a major plant project weighed on profi­ta­bi­lity in the electro­nics business. Gorman-Rupp saw its stock price fall in August despite the record revenue and profit figures reported at the end of July. Ebara, Organo, and Takuma also under­per­formed. Since there were hardly any new negative corpo­rate announce­ments from several Japanese holdings at the same time, there is strong evidence that sector rotation and positio­ning in the yen played a major role.

Sustaina­bi­lity in focus

In August, the physical aspect of climate risk came more sharply into focus. Respon­sible Investor reported that Union Invest­ment , Allianz Global Investors , and Deka Invest­ment are in discus­sions with portfolio compa­nies about how to prepare for the very low water levels of the Rhine. The Rhine is a key trade route for chemicals, fuels, steel precur­sors, and grain between the Nether­lands and Switz­er­land. Low water levels reduce cargo capacity for freight ships; in extreme cases, traffic on some sections comes to a standstill.

This initia­tive is relevant to water investors because it treats water availa­bi­lity as a concrete finan­cial risk for industrial supply chains. The discus­sions thus go beyond tradi­tional emissions targets and focus on practical adapt­ation to a changing climate—for example, in terms of trans­por­ta­tion routes, cooling water, and alter­na­tive sources of supply. It is precisely in this area that there are still signi­fi­cant diffe­rences in the levels of trans­pa­rency and prepared­ness among European compa­nies.

Portfolio Activity

In August, the portfolio was adjusted in a targeted manner. The position in Wiener­berger has been reduced because weakness in key European construc­tion end markets is persi­sting longer than expected at the begin­ning of the year. IDEX and Pentair have been expanded; both compa­nies have estab­lished pump and control techno­lo­gies and serve water markets that are experi­en­cing long-term growth. A new addition is Per Aarsleff. Through its Pipe Techno­lo­gies segment, the Danish infras­truc­ture specia­list focuses on the trenchless rehabi­li­ta­tion of water and waste­water networks. In February, Aarsleff also acquired a 49.5% stake in the Canadian specia­list Liqui­Force Services thereby streng­thening its access to the North American market. The fund conti­nues to focus on compa­nies with clearly visible order backlogs and struc­tu­rally supported demand.