Water economist says we can invest, profit, help people

Steve Hoffmann wants you to invest in "blue gold," make a profit and help save mankind in the process.

He's talking about water, H2O, the oil of the 21st century.

And the 54-year-old resource economist and investment fund manager has written a 303-page primer about just how to do that.

Hoffmann thinks "Planet Water: Investing in the World's Most Valuable Resource" (John Wiley & Sons, 2009) is every bit as compelling as any business book on the market today.

"The global condition of our water resources has never been in more peril, nor have the investment opportunities ever been greater," Hoffmann says.


There is no substitute for pure, life-sustaining water, and it's getting harder to get by the day, Hoffmann says.

Sure, there's an abundance of water. That's why Earth is known as the Blue Planet. But there are serious disconnects: Most water isn't drinkable or isn't accessible in sufficient quantities to major population centers.

Some big cities - including Shanghai; Mumbai, India; and Lagos, Nigeria - already face monumental challenges of matching explosive population growth with limited water supply. Droughts, storms and contamination create massive disruptions.

There's money to be made in fixing all this, Hoffman says.

He wrestled with the idea of profiting from a worldwide predicament but concluded that clean water for all depends on private investment in technology and infrastructure. "It just isn't going to happen without it," Hoffmann says.

Kevin Commins, executive editor of John Wiley, agrees. "We felt a book alerting investors to those opportunities would sell well. Steve's background in the water industry and the investment industry made him an ideal author for the book."

While sales of "Planet Water" haven't exactly created a tsunami, Commins says the book is catching on. It was named one of the top investment books of 2009 by Stock Trader's Almanac.

You see, nobody knows water quite like Hydro Steve.

Hoffmann earned his master's degree in resource economics with a focus on water from the University of North Texas in 1986. His 25-year career has included everything from academics to private-equity funding.

But most impressively, Hoffmann is the architect of the first water-based exchange-traded fund, which was created in 2005.

ETFs bundle stocks with defined similarities so that investors can be diversified within a category or industry. In this case, his index, Palisades Water Index, is 30 stocks, all traded on U.S. exchanges, including water utility, treatment, infrastructure and resource management companies.

PHO, which is licensed and tracked by Invesco PowerShares, is now a $1.5 billion ETF.

Hoffmann's second fund, Palisades Global Water Index, with an international slant, was launched by PowerShares in mid-2008 and is now a $500 million ETF.

Hoffmann pushes ETFs as a good way for individuals to invest in water.

"It's the third-largest industry in the world, yet it is extremely fragmented and diverse," he says. "So it is difficult to identify even a dozen stocks that you could invest in. It makes far more sense to take a market-basket approach."