Water never sleeps: record results, rising booklogs and a turbu­lent March

The W‑EUR tranche achieved a return of ‑8.92%. A figure that should be clearly stated without embel­lish­ment. However, market distor­tions and funda­mental deterio­ra­tion are not the same thing. In phases such as March, in which price movements are driven by senti­ment and not by a change in the long-term earnings power of our compa­nies, attrac­tive entry oppor­tu­ni­ties in high-quality compa­nies have regularly arisen in the past. We take volati­lity seriously, but we do not allow ourselves to be driven by it. In turbu­lent times like these, disci­pline and a long invest­ment horizon remain our most important compass.

Portfolio: Record results in a diffi­cult market environ­ment

From a funda­mental perspec­tive, March was the most infor­ma­tion-packed month of the quarter. A wave of annual results, investor days and strategy presen­ta­tions arrived almost simul­ta­neously, provi­ding a rare oppor­tu­nity to take the pulse of the global water sector. The bottom line is that the compa­nies that manage, purify, distri­bute and protect water are in good shape.

Virtually every portfolio company that presented annual figures for 2025 met or exceeded its own targets. This breadth is remar­kable – in a year with higher interest rates, a weak European construc­tion market and noticeable headwinds from currency effects. ACEA, Italy’s largest water utility, reported EBITDA growth of 10% and a 45% increase in net profit, with invest­ments of over EUR 1.5 billion in regulated water infras­truc­ture. A share place­ment by the majority share­holder Suez led to a signi­fi­cant drop in the share price. We see this as a buying oppor­tu­nity, as the increased free float should attract additional insti­tu­tional investors. SABESP, the priva­tized water utility of São Paulo, which serves 30 million inhabi­tants, has more than doubled its invest­ments and achieved its drinking water and waste­water coverage targets ahead of schedule. A signi­fi­cant milestone, not just a finan­cial metric. Core & Main, the US water infras­truc­ture distri­bu­tion network, recorded its 16th conse­cu­tive year of growth and won the largest water meter instal­la­tion contract in US history.

Behind every water manage­ment project is an enginee­ring company that plans it – and behind that company is an order backlog. This picture was excep­tio­nally strong in March. Webuild had an order backlog of just under EUR 58 billion, 90% of which was in politi­cally stable markets. Tetra Tech raised its forecast for the year and reported an order backlog of USD 5.4 billion, driven by an Irish water program worth EUR 11.8 billion and strong growth in demand from data centers, which require huge quanti­ties of treated water for cooling. The order pipeline for water infras­truc­ture has rarely been stronger. The earnings visibi­lity for the next two years is excel­lent.

However, as we all know, there are two sides to every coin. Sika warned of a weaker first half-year in the wake of ongoing restruc­tu­ring measures and Geberit is facing a subdued start to the year: destocking, poor weather and slightly rising input costs are weighing on momentum and have led to a lower-than-expected outlook for the year as a whole. Nevert­heless, manage­ment is incre­a­singly focusing on new products, digita­lization and logistics impro­ve­ments in order to conso­li­date its market position, even if these measures will put pressure on margins in the short term.

Regula­tion: The wave of regula­tion is gathe­ring pace

Water infras­truc­ture is moving further up the political agenda and the requi­re­ments are becoming more strin­gent. For utili­ties and techno­logy provi­ders, the direc­tion is clear: there are more compli­ance requi­re­ments and a broader need for invest­ment. On the other side of the Atlantic, New York became the first US state to intro­duce manda­tory cyber­se­cu­rity rules for water and waste­water compa­nies – with reporting requi­re­ments, stricter access controls and the separa­tion of opera­tional and external IT systems. Water infras­truc­ture is critical infras­truc­ture, and regula­tion is begin­ning to treat it accor­dingly. This is already being felt on the demand side. Leak detec­tion, smart meters and digital monito­ring systems are no longer niche appli­ca­tions, but the standard response to water scarcity and regula­tory pressure.

Outlook

The start of the second quarter brings the reporting season back into focus – and with it the first oppor­tu­nity to find out directly from compa­nies what impact the current environ­ment is having on incoming orders, margins and forecasts. The key question is: to what extent are rising oil prices impac­ting costs and can they be passed on? The past gives reason for confi­dence. Water compa­nies have generally shown the ability to pass on cost infla­tion through prices. Especi­ally in regulated segments where tariff mecha­nisms provide a struc­tural buffer.

The develo­p­ment of the key end markets is incre­a­singly diffe­ren­tiated. The municipal sector remains the most robust – spending remains at histo­ri­cally high levels and is supported by long-term invest­ment cycles and regula­tory requi­re­ments that remain unaffected by economic uncer­tainty. There are signs of real momentum in the industrial sector: a survey by the National Associa­tion of Manufac­tu­rers shows rising invest­ment inten­tions and a positive inven­tory trend for the first time since the begin­ning of 2022. Data centers remain a struc­tu­rally strong growth driver, from which pump and filtra­tion specia­lists in parti­cular are benefiting directly.

The construc­tion and agricul­ture sectors, on the other hand, remain in a sideways movement. The long-awaited recovery in residen­tial construc­tion is being postponed further due to persist­ently high mortgage interest rates. However, demand for housing-related water products is more likely to be postponed than canceled.

The overall picture for the second quarter is one of selec­ti­vity, not broad accele­ra­tion: strong where it counts most and patient where the recovery is still a long time coming.