In part 1 of our commentary we covered a great deal of critical fundamental developments, which are ...
Who's Who of Global Water Plays
09/09/2016 10:00 am EST
Briton Ryle is a leading expert and growth and income investing, focused on high quality stocks for long-term investors. Here, the editor of The Wealth Advisory looks to the water sector and favorite ETF for those seeking exposure to this vital resource.
Steve Halpern: Our guest today is Briton Ryle, editor of The Wealth Advisory. How are you doing today Brit?
Briton Ryle: Doing great Steve. How about yourself?
Steve Halpern: Very good. The Wealth Advisory combines in depth fundamental and technical analysis to uncover high quality investments. Now personally, I think it's a must-read for any serious investor and I can't tell you how much I look forward to each issue. Could you talk a little about your underlying investment strategy?
Briton Ryle: Sure thing. Let me start by saying thanks for the compliment there Steve. I appreciate that. We do work pretty hard on it. Our basic philosophy is really kind of two fold and obviously we focus on dividend and income stocks which really are the best place to be.
We do also try to target companies that will pay dividends in the future. It's nice to be able to get in on the ground floor on that kind of thing because it usually leads to a very long string of outperformance.
Basically we want to find great companies. That's one of our biggest goals, and companies that can grow revenues and earnings at a better than average year-in and year-out, and have really nice prospects going forward.
Starbucks (SBUX) has been a great example of that for us and we bought that in the low 20s, and it's been a great one consistently raises its dividend, and we believe that it's going to keep doing that.
We also look for just follow dividend opportunities. We really want to find solid trends that should allow companies to grow within them over a long period of time.
We've had some great success with some REITs in the data center space and in mobile infrastructure space, like internet data. Those spaces are just going to grow and grow and when you can find really solid dividend payers you've got a really good chance of doing well.
We investigate their management and make sure that they're doing things right. One of our latest ones was a mobile infrastructure REIT that was paying about a 15% dividend trading around $16 or $17. It's about $30 now, and I think it's going to reach another 50% easily just because the growth opportunity is so fantastic in front of it.
Steve Halpern: Excuse me. What is the name and the symbol for that?
Briton Ryle: That one is Communications Sales and Leasing (CSAL). It was a spinoff from Windstream Holdings (WIN) just about a year ago and it's a nice one. I think there's a lot of opportunity on that one coming up.
Steve Halpern: Now in addition to individual stocks, in your latest issue, you did an in-depth report on any exchange-traded fund that focuses on perhaps the most basic and necessary resource in the world, and that's water. Before we look at the specific fund, could you discuss the water sector in general and also touch on what you refer to have a fresh water crisis?
Briton Ryle: Yes, well water is the source of life on the planet for sure, and it's interesting to note and many people may not know it, but we don't get new water.
We have the same water on this planet that we've had since it was formed. It just gets recycled through animals, through the clouds, into the earth, and then back up again.
With a static supply and a continually growing demand from the rising population, you just have both a fundamental opportunity and a fundamental problem that continues to need creative solutions.
Statistics show that in the next 10 years nearly two billion people will be living in water scarce environments and that's parts of Africa, the Middle East, China, parts of The United States.
California has been under like perpetual drought for the last four years. In Brazil they had a bad drought last year where they started rationing water. It's kind of an alarming situation but really doesn't get enough play.
We all know that water is a limited resource but for many of your readers I'm sure and mine too, it's not something that you experience every day because it's still fairly plentiful and readily available in the United States but as the population of the world tends to continue to grow, it's going to become more and more of an issue.
Steve Halpern: Now to gain exposure to these trends you're talking about, you've recommended Guggenheim Global Water ETF (CGW). Can you tell our listeners a little about this fund?
Briton Ryle: Sure. It's roughly about two years old and it has American, North American, and international companies in it. It pays 1.5% dividend and frankly that dividend is one of the main reasons that we went with ETFs, but it has a good representation of the whole spectrum of water companies, and then you have utilities.
You have infrastructure in place and companies that sell materials for storage and treatment facilities and that kind of thing, so we thought it was just a good way to get good exposure because you know that the water issues are going to be both a global concern and a global opportunity so we thought that this would be a very good opportunity to go with an ETF.
Steve Halpern: And indeed, you note that the funds top holdings could be considered a who's who of companies involved in the water sector, and you point to some of its largest holdings is representative of the overall fund including US-based companies like American Water Works (AWK) and Xylem (XYL). What do these companies do and how do they fit into the whole water story?
Briton Ryle: Again, the fund itself kind of represents two sorts of classes of water stocks, like utilities that actually bring water to the home or the business and then the companies that provide the infrastructure kind of pix and shovel place. Xylem is one of those; you know pumps, filtration systems, and things like that.
American Water Works based up near Philly operates as a utility. They own some vans. They have storage facilities, pumping stations, and lots of pipelines to get the water where it needs to go and treatment facilities and all that kind of thing.
Steve Halpern: Now the fund also holds international stocks and two that you point out is among the larger holdings is Geberit AG (VTX: GEBN) and the London-based firm United Utilities Group (Lon: UU). Can you share your thoughts on these stocks and on overall importance of global diversity in this fund?
Briton Ryle: Sure. Geberit is a little bit different. They sell more building materials and some even like consumer products like bathroom tiles and that kind of thing. Interestingly, it's actually the company is based in Switzerland. I thought it was German too when we were first investigating it but I found out that was actually not the case.
They even do some tiles but they do like flushing mechanisms for toilets and all kinds of different things. They sell direct out to techs and builders as well as to bigger operations, and then yeah, The United Utilities is just another nice utility option serving the UK market. That one pays a pretty nice dividend which will help the fund overall,
But again, with the international exposure this was one that we really wanted to get international exposure because we figure that when you have what's been going on in our climate lately where certain areas are getting a ton of water and a ton of rain and other places are in drought.
It's going to be a little more difficult to pinpoint where the places of need are going to be, so we thought that just trying to be exposed basically to everything was a good idea.
You know that it's going to be a continuing issue just because of the population growth and the limited supply, so we feel like it's a good, solid opportunity over time to have a fund that's going to continue to raise its dividend and go up in price, and we think it's a good bet.
Steve Halpern: Now finally, before I let you go I just wanted to touch on the time horizon involved. As we mentioned at the beginning, you tend to focus on long-term high quality investments, is this the kind of ETF that you would recommend for a buy and hold position?
Briton Ryle: Yes. Absolutely, and that's another. I guess I didn't mention that when we were talking strategy earlier, but we definitely always -- well, pretty much always -- want to buy companies that you feel like you could hold forever, and it doesn't always work out that way.
We continue to monitor the fundamentals of the investments that we recommend to see if there are changes and that sort of thing, but it's comforting to go into something thinking that you can hold it for a long time, and that's exactly what we think we have with this Guggenheim Global Water Fund.
It addresses the global problem. It's not going to go away. It's just not going to go away. You don't even have alternative sources like you do with oil or even natural gas. There's really no other place to turn so nothing can really compete with it, so yeah, we think it's a very good long-term holding.
Steve Halpern: Again, our guest is Briton Ryle of The Wealth Advisory. It's always a pleasure to talk to you. Thank you so much for your time today.
Briton Ryle: Sure thing Steve. Thank you.
By Briton Ryle, Editor of The Wealth Advisory
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