Since our inception in 2006, Water Asset Management’s global water equity portfolios have outperformed the market. This performance is based on the fundamental fact that demand for essential water and wastewater services, and the products that ensure water quality and water supply, have strong fundamental tail winds and are less economically sensitive than many other industries. The result is water company earnings’ growth is more stable and more predictable than most other industries. Inevitably, that gets reflected in more consistent stock price appreciation over time.
While inflation appears likely to persist, negatively impacting the profitability of many other industries, water utilities have inflation-protected business models. Water utility business regulators allow companies to pass through inflationary costs to rate payers and recover those costs through higher tariffs. For example, in 2022, water utilities in the UK raised tariffs by roughly 7%. In the US, it was roughly 10%. Brazilian water utilities last year increased tariffs by 15%. This results in predictable earnings per share and dividends that have grown consistently-- not for years, but for decades, as more capital continues to get invested in ever growing regulated asset bases to improve water quality and supply.
Investors are bracing for economic uncertainty in 2023 and a possible recession, WAM's water portfolio of global stocks are very well positioned to outperform by delivering essential water resources. As we often say, in times of uncertainty, demand for clean reliable water remains certain.