This year’s World Water Day theme, “Glacier Preservation,” shines a spotlight on the urgent need to address the rapid decline of glaciers due to climate change. Glaciers are not just frozen water reserves; they are lifelines for ecosystems and communities worldwide. Their meltwater is vital for drinking water, agriculture, industry, clean energy production, and maintaining healthy ecosystems. However, the accelerating melt is causing unprecedented uncertainty in water flows, leading to severe impacts such as flooding, rising sea levels, and contamination of land and water resources. The 2023 State of Global Water Resources Report by the World Meteorological Organization revealed that glaciers lost 600 gigatons of water in 2023, the largest measurement in 50 years. This stark reality underscores the need for immediate action and investment in water management and infrastructure.
The supply-demand dynamics of water present both challenges and opportunities. As glaciers retreat, the demand for reliable freshwater sources increases, driving investment in utilities, infrastructure, and technology. This trend is evident in the growth of thematic investments in water-related activities. As of February 2025, there are 73 open-end funds and ETFs focused on the water theme, with 13 in the US and 60 in Europe, representing a total of $41 billion in assets under management. This universe has grown by almost 70% in the past five years, reflecting the increasing recognition of water as a critical investment theme.
However, the path is not without its hurdles. Assets peaked at $50 billion in 2021 before declining to today’s level due to outflows and lower valuations. US water funds have registered net withdrawals in each of the past three years, totaling $820 million. European water funds have bled an aggregated $5.6 billion over the past two years, contrasting with the subscriptions of nearly $7 billion in 2021. The recent outflows on both sides of the Atlantic can be partly explained by the underperformance of the strategies against a backdrop of subdued industrial activity and high interest rates. After outperforming the Morningstar Global Markets Small-Mid Cap Index by 4 and 12 percentage points in 2021 and 2022, respectively, US water funds paced the index in 2023 and lagged by 3.5% in 2024. European water funds trailed the benchmark by an annual average of 5.4% over the past two years.
Despite these challenges, the need for investment in water infrastructure remains pressing. Municipal and broader water and wastewater infrastructure spending remained healthy last year in the US and Europe, but broader industrial activity was subdued, resulting in slower-than-anticipated capital and operating expenditures in the water sector. Higher interest rates continued to hold back residential and nonresidential construction activities, affecting water spending in multiple markets around the world. Moreover, low agricultural commodity prices pressured profitability in key growing regions such as the US and Brazil, limiting investment in irrigation equipment and technology.
Investors seeking to make an impact can look to the U.N. Sustainable Development Goal 6 (Clean Water and Sanitation). US water funds vary widely in their revenue contribution to the theme, ranging from 7% to 65%, averaging 38%. The Global X Clean Water ETF AQWA boasts the highest percentage of revenue contribution to the theme at 65%, investing in companies advancing the provision of clean water through industrial water treatment, storage and distribution infrastructure, and purification and efficiency strategies. In contrast, the NYLI Clean Oceans ETF OCEN focuses on companies that help achieve a cleaner ocean through reduced pollution and increased resource efficiency, with a lower revenue percentage (7%) associated with SDG 6.
European water funds offer a larger and more diverse range, with 60 in total. These funds tend to be actively managed and biased toward US companies, with exposure to European companies not exceeding 12%. Pictet Water PBFQ, an Article 9 fund, is the largest European water strategy, with $8.6 billion in assets. The fund focuses on companies globally that provide water supply or processing services, water technology, or environmental services. Most European water funds incorporate environmental, social, and governance factors, considering issues relating to drinking water, sanitation, and hygiene, as well as water use efficiency and waste disposal, as core elements of securities selection.
The blue economy is an emerging focus for water investors, with eight of the 60 water funds available to European investors concentrating on this theme. This shift highlights the growing recognition of the interconnectedness of water management and economic development. As the world grapples with the impacts of climate change, the need for innovative solutions and investments in water infrastructure becomes ever more critical. The theme of
