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.