Capital Markets

The water industry is becoming increasingly followed by the investment community.  There are four major Exchange Traded Funds listed today that enable investors to invest in the water industry in the United States and overseas.  A few water resource development firms are traded publicly.  One seawater desalination firm is traded in the United States. A handful of regulated water utilities are publicly held.  Capital markets may not be clairvoyant, but they can be informative about the consequences of trends and events in the industry.

Capital Markets provides information and analysis on developments concerning water exchange traded funds, water development firms and water utilities.  We create performance charts and indexes for industry segments, as well as provide occasional commentary.

JOW tracks firms in three areas of the water industry:

  • Resource Development Firms: Cadiz Company (CDZI) and PICO Holdings (PICO)
  • Desalination Firm: Consolidated Water Company (CWCO)
  • Water Utilities: American States Water (AWR), American Water Works Company (AWK), California Water Service Group (CWT),
    and San Jose Water Company (SJW)
  • Exchanged Traded Funds (ETF): PowerShares Water Resources (PHO), First Trust ISE Water Idx (FIW), Guggenheim S&P Global Water Index (CGW),
    and PowerShares Global Water (PIO).

Occasional Capital Market Commentary: Water Utilities and California’s Drought June 2015

Occasional Capital Market Commentary Archive

Resource Development Firms

  • Capital Markets: Resource Development Firms, August 2015

    Cadiz Cadiz (CDZI) stock price has declined in the past month and now stands 23.7% below its expected price.  The decline followed a report stating that the Cadiz Project has failed federal environmental review and Metropolitan Water District of Southern California not seeing how the project could be built.  The price is 43.2% below the price 52 weeks ago (when its price hovered around $13/share).   Reflecting its recent downward drift, it stock price is 9% below its 10-week exponential…

Desalination

  • Capital Markets: Desalination, August 2015

    Consolidated Water Company (CWCO) stock price is now 19.4% above its expected price, reflecting a recent price decline after the company announced 2nd quarter earnings material below 2014.  The stock had been on an upward trend thanks to the bump in its stock price in mid-March following an SEC 8k filing stating that it has found an equity partner for a 100,000-AF desalination plant at Rosarito Beach.  It also stated that it anticipates entering into a definitive agreement with the State of…

Water Utilities

  • Capital Markets: Water Utilities, August 2015

    American States Water American States Water (AWR) stock price hovers around its expected price.  AWR’s price has increased by 21.7% over the past 52 weeks—the fastest increase among water utilities.  The stock enjoyed a brief period of an over-performing stock in early March 2014 when Zack’s issued a “strong buy” opinion on the company.  The stock price peaked last March and has since been on a declining trend.  The price has been moving upward since June. AWR stock had…

Exchange Traded Funds

  • Capital Markets: Exchange Traded Funds, August 2015

    Powershares Water Resources Powershares Water Resources (PHO) stock stands at 32.1% below its expected price.  Powershares price has declined by 10.5% over the past 52 weeks.  The PHO price is on a continuing decline trend. PHO stock had been over performing relative to the returns forecasted by the Capital Asset Pricing Model by an annual rate of 2.9% from January 2006 through December 2012.  Powershares price has generally followed the expected price forecasted by the Capital…

The Indexes are based on equally-weighted portfolio of the underlying firms or funds in an industry segment starting on January 3, 2006.  Portfolios are rebalanced with inclusion of new entrants.  The value of the portfolios are normalized to 100 on the start date.

The Resource Development Firms, the Desalination Firm and the ETF’s crashed with the S&P 500 Index in fall 2008.  In contrast, stock prices of water utilities remained relatively stable.  With the turnaround in the S&P Index in 2009, the ETF Index jumped and caught up with the Water Utility Index by 2010.  The Resource Development Index and the Desalination Index generally followed the S&P Index until spring 2010 and fall 2009 respectively, when their fortunes separated—the former two starting a steady decline and the latter continuing to rise.  The ETF Index then fell off its rise with the Water Utility Index in the fall of 2011.  Since that time, the Water Utility Index continues marching ahead of the other segments, with ETF marching ahead of the S&P Index.  The Resource Index and the Desalination Index remain in steady decline.

The performance of an index reflects the performance of the index’s various components.  JOW uses the Capital Asset Pricing Model to measure a stock’s abnormal performance (measured by Alpha) and how the stock’s price moves with the market (measured by Beta).  The analysis is based on performance since January 3, 2006 through December 31, 2012.  Under performance by both resource development firms contributed to the decline in the Resource Development Index.  Desalination has also under-performed the market by about the same as the Resource Development Index.  The growth in the Water Utilities Index is driven by American Water Works and American States Water, although the other two utilities generated positive, though smaller, abnormal returns.  Domestic ETF’s outperformed Global ETF’s.

Group./Entity Alpha* Beta**
Resource Development    
   Cadiz Company -6.1% 1.21
   PICO Holdings -4.9% 1.09
Desalination    
    Consolidated Water Company -4.3% 1.01
Water Utilities    
   American States Water 8.2% 0.79
   American Water Works 12.3% 0.50
   California Water Service Group 2.4% 0.68
  San Jose Water Company 2.8% 1.03
Exchange Traded Funds    
   PowerShares Water Resources 2.9% 1.22
   PowerShares Global Water -2.2% 1.09
   First Trust ISE Water Idx 6.4% 1.22
   Guggenheim S&P Global Water Index 1.6% 1.13

* annual return in excess of return estimated by Capital Asset Pricing Model

** measure of how return varies with return on S&P 500 Index.

Definition of Capital Asset Pricing Model: a finance model relating the expected return of a risky asset (such stock) to a “risk free” return, such as U.S. Treasury Notes, plus a risk premium equal to the difference between the expected return on a diversified portfolio, such as the S&P 500 Index and the risk free return, multiplied by “Beta”.

Expected Stock Price: calculated by taking closing price for last week of 2012 adjusted weekly by the firms expected return from the Capital Asset Pricing Model

For a focus on more recent performance, see the “Performance Charts” for each firm and ETF.