Timely thematic topic: 3 Catalysts for the water sector

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Catalyst #1: Food insecurity

Heightened focus on resiliency due to Ukraine/Russia conflict and worsening droughts driving increased investment in water infrastructure and equipment

Food prices have soared following the commencement of the Ukraine/Russia war as those countries account for nearly 20-30% of global wheat and corn supply¹
- Amplifying the crisis, farmers can’t fill the production shortfall due to the worsening drought in major producing regions across the world
- 61% of total acreage in the US is in drought²
Food insecurity expected to persist for decades as result of growing demand, extreme weather events (i.e. droughts), increased water scarcity, and plateauing productivity
- 70% of water use is from agriculture³
- Worldwide demand for fresh water has tripled during the last century and is now doubling every 21 years

Catalyst #2: Strong earnings outlook

Earnings in water sector have remained resilient despite the challenging economy and volatile market, with earnings growth remaining well above the broad market

Strong water fundamentals driving above-market growth of ~15%, outpacing S&P 500 earnings forecasts
Secular trends remain intact to support long-term investment in water infrastructure and technology, including:
- Government support (i.e. US Infrastructure bill)
- Corporate sustainability commitments (Net Zero Water)
- Climate resiliency spend (i.e. FEMA recovery efforts)

As of 3/31/2022. Source: Bloomberg

As of 3/31/2022. Source: Bloomberg and Goldman Sachs

Catalyst #3: Compelling valuations

Water sector valuation below historic norm on absolute and relative basis compared to broad equity markets

Secular tailwinds and strong earnings growth expectations mentioned on page 2 provide valuation support for water equities once broader equity market volatility subsides
Expect a number of portfolio holdings to benefit from stable growth outlooks as global economic growth slows in 2H 2022 into 2023

As of 3/31/2022. Source: Bloomberg

¹Bloomberg.com. ²Forbes.com. ³World Bank.

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