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.