Investing in Water: Part 2


Last week I wrote about how you can invest in water. After all, water is a limited resource, the supply which will outstripped by demand in the imminent future. This concept of demand and supply is not new, not even to water, but the magnitude for the shortfall in supply is only coming to light recently.

Today in part two, I will be introducing a new type of investment. It still trades on the ASX like any other stock, but Blue Sky Alternatives Access Fund Limited (ASX:BAF) falls into the obscure yet rather interesting ‘alternatives’ sector.

What does that mean?

Well essentially BAF manage and own assets which are different (both in terms of returns and risk profile) to the normal stuff like consumer staples, or resources.

But back to the opening paragraph, this is about water. Last week’s article mentioned Michael Burry MD’s foray in to investing in water rights. Presumably, like me Dr Burry sees water as a recession proof investment. I mean we all need water to survive right? And as my learned colleague Cam wrote earlier this week the potential for yet another global meltdown is far greater than the suits would want you to believe.

The opportunities for retail investors like us to get a stake in the water market are limited, making ASX:BAF and incredibly attractive option.

It’s not 100% water. As in the assets they own include more than just water rights. In fact their portfolio includes venture capital, real estate, student accommodation and hedge funds. The good news for us however is that over 23% (at the time of writing) is made up of their water fund. That’s over AU$31m.

The performance of this particular fund has been strong. December 2015 saw the water fund appreciate 2.8%. Driving the value of this fund has been deficient rainfall and prolonged drought conditions in much of Australia. This has placed strain on the water supply, meaning those that own it can charge a premium to sell it.

Taking a look at the broader fund (ASX:BAF) is fairly new. About 18 months old the fund continues to mature and optimise the asset allocation. The stock price has been more or less static for that period, despite reaching a high of $1.09 in March 2015. That is despite the 12 month post tax performance being reported at 12% (which factors in dividends and the value of assets).

I am considering BAF as a long term hold. They have a broad asset base which should underpin long term growth. BAF are currently trading with a low P/E of 13.39 and with the 12 month return mentioned above they have me interested. The market has been smashed over the past month, as a result there are bargains to be had, and this could very well be one of them.

BAF is officially on my watch list. If you want to receive the Blue Lake Invest news straight to your inbox, including left field stocks that make my watch list then subscribe with your email below.