NEW YORK — An investment company has hired an environmental engineer to run a mutual fund that invests in water infrastructure. The company calls it the only actively managed fund that makes such investments.
NEW YORK — An investment company has hired an environmental engineer to run a mutual fund that invests in water infrastructure. The company calls it the only actively managed fund that makes such investments.
Aqua Terra Asset Management LLC, formed as a subsidiary of West Conshohocken, Pa.-based Boenning & Scattergood Inc., was selected as the subadviser for the Kinetics Water Infrastructure Fund last month. It will invest in natural resources, with a focus on water infrastructure.
Kinetics Mutual Funds Inc. of Sleepy Hollow, N.Y., which serves as the investment adviser for the fund, tapped William Brennan, a former environmental engineer with 14 years’ experience in various analytical positions, including three years as a portfolio manager.
Money and water
“Dealing with investing, drinking and waste water issues translates to money management,” he said. “You get to see plant layouts and get to understand the true mechanics behind it, why people use the vendors or delivery systems behind it.”
Several global organizations have insisted that there is a strong need for investing in global water infrastructure. A 2005 report from the Global Water Partnership of Stockholm, Sweden, stated that $4.5 trillion needed to be invested between 2000 and 2025 to improve the global infrastructure.
Meanwhile, an Environmental Protection Agency study in 2005 said that an investment of $277 billion over the next 20 years was needed to ensure that there is safe drinking water in the United States.
“We have not kept up with the required spending to address the present infrastructure needs,” Mr. Brennan said. “Money that should have been devoted to keep infrastructure at the current standard or above was spent in other areas.”
Mr. Brennan noted that concern over expenses related to water may get overlooked because it is the cheapest utility that is delivered into a household. “There are groups out there that see water as a God-given right and think it should be provided for free,” he said.
The fund will invest in several subsectors in the water industry: drinking utilities, waste water utilities, conveyance, maintenance services, chemicals, contract operations, equipment (pumps, pipes and motors), instruments, and engineering and consulting. Investments are broken down by sector in North America, Asia, South America and Europe.
Typically, 30% of assets are invested in the United States, and the remaining 70% is invested globally, Mr. Brennan said.
The fund, which has Class A shares that trade under the symbol KWIAX, has a 3% expense ratio, which is discounted to 1.99%.
There are currently five exchange traded funds in the water field. “We are value investors and differentiate ourselves because, in our view, there is volatility and risk in ETFs that cannot be managed, because re-
balancing is done on a quarterly or annual basis,” Mr. Brennan said.
“The concern is how concentrated the portfolio is and how expensive it would be compared to other options,” said Michael Herbst, a mutual fund analyst at Morningstar Inc. in Chicago.
The five ETFs, which were launched in recent months, have garnered $130 million in assets, he noted.
ETFs called ‘concentrated’
However, Mr. Herbst said, water-based ETFs are “highly concentrated” and tend to pile into a “hot sector.”
It is a pretty healthy start in terms of investor interest, and it is not surprising that people would try to launch water subsector funds, he added.
An earlier actively managed water fund was unable to keep up with the current. The ATC Aquarion Fund, which was run by Avalon Trust Co. of Santa Fe, N.M., closed in 2002 due to the “inefficiencies and high costs of managing the funds’ small asset base” and “difficulties encountered in expanding the fund’s shareholder base, according to a filing with the Securities and Exchange Commission.
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