Water & Waste: An Investment Theme

1. What is the Water & Waste Theme?

Water and Waste is an investment theme shared by the T. Bailey Global Thematic Equity Fund and our multi-asset funds. It provides exposure through investment in companies operating across the global water and waste value chains.

These businesses underpin essential infrastructure, including water treatment and purification, waste collection, recycling, and disposal, and are fundamental to the functioning of modern economies.

2. Why Water & Waste? The Investment Case

Water and waste companies are core to civilisation and its sustainable growth. Demand for these services is growing faster than global GDP, supported by a number of long-term structural drivers.

Urbanisation

Over 50% of the global population now lives in cities, a figure forecast to rise to around 70% by 2050. Urbanisation places increasing pressure on water supply, wastewater treatment, and waste management infrastructure.

Rising Consumption

As populations urbanise and incomes rise, consumption increases — and anything consumed today becomes waste in the future. Wealthier societies also tend to consume more water-intensive goods, a trend increasingly driven by the growth of the middle class in emerging markets.

At the same time, waste decomposes slowly in nature, reinforcing the need for effective recycling and treatment solutions.

Water consumption itself continues to grow. Even digital activity has a physical footprint — for example, the computing infrastructure behind AI and data usage relies heavily on water for cooling and processing.

Infrastructure Pressure

Demand for water and waste services is global.

• In emerging markets, new infrastructure must be built where little currently exists.
• In developed markets, ageing infrastructure requires repair, replacement, and upgrading.

Both trends contribute to increased waste volumes and a greater need for disposal and treatment capacity.

Regulation

The regulatory backdrop continues to evolve, creating opportunities for companies providing water filtration, pollution control, recycling, and sustainable manufacturing solutions.

Resource Scarcity

Although often taken for granted, water is becoming increasingly scarce, while waste is increasingly viewed as a resource. Governments and lenders are stepping up financing for water security as climate volatility, leakage, and ageing assets force investment.

3. Attractive Industry Characteristics

We see a positive investment case for companies across the water and waste value chains, supported by both structural growth drivers and attractive business fundamentals.

These industries are global and scalable, and from a portfolio perspective they offer meaningful diversification benefits. Many companies operate regulated or quasi-monopoly business models with real pricing power, often underpinned by long-term contracts and highly visible revenue streams.

This has historically resulted in resilient performance during periods of market stress. Drawdowns have often been more limited than those seen in broader equity markets, while the universe has continued to participate in rising markets over time.

Long-term data highlights an attractive risk-reward profile, reflecting both the quality of the underlying businesses and their diversification characteristics.

4. How Do We Gain Exposure?

The Investable Universe

The water and waste investment universe has a distinct composition. Most companies are small- or mid-capitalisation businesses, with no mega-cap equivalents to the largest global technology stocks.

This matters for two reasons:

• Exposure is difficult to obtain via passive strategies
• Parts of the universe remain under-researched, with some companies not covered by sell-side analysts

Within an investable universe of approximately 360 companies, this creates opportunities for active managers to identify mispriced or overlooked businesses.

While water utilities may appear the most obvious constituents, they account for only around 12% of the universe. The remainder spans a broad range of activities including water filtration, irrigation, agriculture, recycling, and waste management.

On the waste side, opportunities include companies involved in treatment, transportation, and the disposal of hazardous waste from sectors such as healthcare, pharmaceuticals, and energy. End markets are highly diversified, resulting in a truly global opportunity set.

Our Route to Exposure

We access this theme through the Regnan Sustainable Water and Waste Fund — an actively managed, high-conviction global equity portfolio with an integrated ESG process, high active share, and minimal overlap with mainstream global equity funds.

5. Company Examples

As investors, we are encouraged not only by the growth dynamics of the theme but also by the technology and sustainability benefits delivered by companies within the universe.

One example is Organo Corporation, a Japanese water purification company providing ultra-pure water treatment services to semiconductor manufacturers such as Taiwan Semiconductor Manufacturing Company (TSMC). Semiconductor production requires water free from impurities, and Organo installs and maintains on-site treatment plants to meet these stringent requirements. Importantly, the company’s end markets are diversified, extending into pharmaceuticals, energy, and environmental applications.

In waste management, companies such as Republic Services and Waste Management demonstrate the compounding potential of stable earnings, pricing power, and disciplined capital allocation. Technological innovation is also evident. For example, landfill methane — previously an environmental liability — can now be captured and reused as fuel, benefiting both emissions reduction and company economics. In effect, waste collected today can help power the trucks that collect it tomorrow.

6. Why Now?

We currently see an attractive risk-reward profile for the theme. Valuations across the water and waste universe trade at a discount to the broader equity market, despite robust underlying fundamentals.

Water utilities operate as regulated natural monopolies, with supervisory frameworks that support predictable cash flows and sustainable dividend distributions through economic cycles. In waste management, economies of scale and route optimisation have led to oligopolistic market structures, reinforcing margin stability and cash generation.

These business models also tend to be insulated from tariff risk. Indeed, increased reshoring activity could act as a tailwind by raising demand for both water infrastructure and waste management services.

7. What This Means for Investors

The Water & Waste theme provides exposure to an essential segment of the global economy that is structurally growing yet under-represented in traditional equity indices.

For investors, this brings several key portfolio benefits:

• Diversification: Returns have historically behaved differently from mainstream equity sectors, helping to smooth portfolio volatility over time.
• Resilient business models: Regulated or quasi-monopoly structures, long-term contracts, and pricing power support stable cash flows across economic cycles.
• Access to smaller-cap opportunities: A predominantly small- and mid-cap universe creates scope for active management and is difficult to replicate passively.
• Upside participation with lower drawdowns: The theme has historically participated in rising markets while experiencing more limited drawdowns during periods of stress.

Taken together, Water & Waste represents a compelling combination of structural growth, resilience, and diversification, making it a valuable component within multi-asset and global thematic portfolios.