Water: The Ultimate Commodity

The Palisades Water Index is an unmanaged benchmark that many water indexes and ETFs track. Why the interest in water? Like gold and oil, water is a commodity - and it happens to be rather scarce.

Global Water Resources
About 70% of the earth's surface is covered in water, but 97% of it is saltwater, which is unfit for human use. Saltwater cannot be used for drinking, crop irrigation or most industrial uses. Of the remaining 3% of the world's water resources, only about 1% is readily available for human consumption.

Global Shortage
Rapid industrialization and increasing agricultural use have contributed to worldwide water shortages. Areas that have experienced water shortages include China, Egypt, India, Israel, Pakistan, Mexico, parts of Africa and the United States (Colorado, California, Las Vegas and the East Coast), to name but a few.

Pollution also highlights the need for clean water. In the U.S., the dead zone off the Gulf Coast highlights the impact of fertilizer runoff, and methyl tertiary butyl ether (MTBE), an additive in unleaded gasoline, can be found in well water from California to Maryland. Overseas, highly publicized incidents in Russia, China and elsewhere demonstrate that pollution isn't limited to the West. Of course, fouled water supplies further limit the amount of fresh water available for human use.

Indexes
Like any other scarcity, the water shortage creates investment opportunities. Here are some of the more popular indexes designed to track various water-related investment opportunities:

• Palisades Water Index - This index was designed to track the performance of companies involved in the global water industry, including pump and filter manufacturers, water utilities and irrigation equipment manufacturers. The index was set at 1000 as of December 31, 2003. It closed at 1351.08 on December 30, 2005.

• Dow Jones U.S. Water Index - Composed of approximately 23 stocks, this barometer climbed from 500 to 800 over the 12 months ending December 31, 2005.
  
  
• ISE-B&S Water Index - Launched in January 2006, this index represents water distribution, water filtration, flow technology and other companies that specialize in water-related solutions. It contains 20 stocks.
  
  
• S&P 1500 Water Utilities Index - A sub-sector of the Standard & Poor's 1500 Utilities Index, this index is composed of just two companies, American States Water (NYSE:AWR) and Aqua America (NYSE: WTR). In 2005, the S&P 1500 Water Utilities Index rose in excess of 45% .

The Bloomberg World Water Index and the