The new index barometers will join the NASDAQ Water Index and the NASDAQ Water Total Return Index.  Whether this is green or sensible is up to you, but there is a fair question to ask here: How many water indexes are needed?  The new indexes are as follows:  OMX Global Water Index, NASDAQ OMX Global Water Total Return Index, NASDAQ OMX US Water Index, and the NASDAQ OMX US Water Total Return Index.

What is interesting about this and only highlights our key question even more is that NASDAQ is selecting the constituents from the same universe of stock picks as the first two water index readings.  The difference is in the component weightings. The total return indexes reinvest dividend payments and the price returns effectively discount the dividends.

Potable water and its future availability remain the key topics of why your investment portfolio should chase this sector.  Again, the trick is that it is not easy.  It turns out that many “water companies” turned out to be dependent upon the creation of new housing subdivisions over the last fifteen years or that they are tied heavily to government contracts.  General Electric Co. (NYSE: GE) and 3M Co. (NYSE: MMM) are two key holders of water investing, but these water operations are mixed with fluids in these conglomerates and investing in any conglomerate because of one aspect of their business just misses the point of investing.

Along with the theme of water investing for the long-term, we did create a list of Stocks to Own for the Next Decade and that included American Water Works Company, Inc. (NYSE: AWK).

What makes water difficult to invest in is that fluid and hydraulic outfits keep looking to consolidate via mergers and acquisitions.  This fresh Nalco Holding Company (NYSE: NLC) merger with Ecolab Inc. (NYSE: ECL) has the goal of adding $5.4 billion in a combination of cleaning, sanitizing and water management.

We now have ITT Corporation (NYSE: ITT) breaking itself up and one of the 3 surviving companies, its water company, will be called Xylem under the “XYL” ticker on the New York Exchange.

We recently featured some of our top water investments out to 2012 and beyond, including American Water Works Company, Inc. (NYSE: AWK), Insituform Technologies Inc. (NASDAQ: INSU), Tetra Tech Inc. (NASDAQ: TTEK), and others.  This was an expanded and updated module for our Top Water Pick for 2011.

What we do expect as one possible outcome from more index launches is the creation of more exchange-traded funds which track water investing.  There are already ETF products around the Palisades Water Index and Standard & Poor’s indexes.  ETFs do not currently track the NASDAQ indexes in water per our most recent screens.

PowerShares Water Resources Portfolio (NYSE: PHO) has more than five years of history and it has well almost $1.2 billion in assets inside the ETF.  Its international equivalent that includes the U.S. but is more globally focused is the PowerShares Global Water Portfolio (NYSE: PIO) but that one is only about one-third of the size in assets and only about one-fourth as liquid when measuring shares per day.

And then come the less liquid water ETFs, no pun intended… There is also the Guggenheim S&P Global Water Index (NYSE: CGW) ETF, which carries about $250 million in assets and trades about 50,000 shares a day.  The even smaller First Trust ISE Water Index Fund (NYSE: FIW) has about $69 million in assets but trades an average of under 20,000 shares per day.

There are many more ways to invest in water, but you have probably gathered that we maintain it is not an easy sector to invest in.  Many pure-play water companies trade at significant premiums to the broader market.  Even when you go through the individual stock holdings that these water ETFs hold, you will suddenly realize that the term “Water Investing” really translates to “companies which also have water operations.”

JON C. OGG

Water is a sector we consider as a “Must-Have” in most long-term investment portfolios.  We have even gone as far as saying that H2O is one of the key and critical investment sectors for futurists, who often look out a decade or more when evaluating trends.

Investing in water used to be much easier, but now companies like General Electric Co. (NYSE: GE) and 3M Co. (NYSE: MMM) have helped to consolidate the filtration segment of the water-trade.  Both of those are attractive investments from time to time, but both are far too broad to invest in just because they have water exposure that will drive growth in the future.  The top water stock for 2011 from 24/7 Wall St. was American Water Works Company, Inc. (NYSE: AWK) and that remains a favorite today.  Shares were trading around $25.30 when that award was issued versus about $29.00 now.  We continue to love this company and we admire its recent dividend hike.

Our goal is not just to update our own price target in American Water Works Company, Inc. (NYSE: AWK).  We believe that can continue on higher and we now think that $35.00 is feasible.  It just raised its dividend and we expect another dividend hike in a year and then again after that.  Still, the goal is to now identify those water investments which offer both growth and safety ahead as the stock market and economy are facing mixed outlooks.

Since we started covering the sector broadly, a lot has changed. Conversely, much remains the same as well and that is a good thing.  The 2012 election cycle is not far away, the economy is in a soft-patch, Greece is a real threat that could to topple Europe, Japan is trying to get out of the red in its GDP again, and both China and India are trying to slow their economies to fight inflation.  We want to review our “investable water universe” and single out some of our own single ‘best idea’ water investing strategies based on today’s valuations and trends of today that can have a significant upside ahead.

Some reports have been out about actual water scarcity here in America.  Securing potable water reserves in the future will be a challenge for many nations and this is where the term “The International Water Wars” comes from.  The water sector has given large rewards in some cases, and been very painful in other cases.

We are reviewing the following today: American Water Works Company, Inc. (NYSE: AWK); Watts Water Technologies, Inc. (NYSE: WTS); Instituform Technologies Inc.  (NYSE: INSU); Tetra Tech Inc. (NASDAQ: TTEK); and Calgon Carbon Corporation (NYSE: CCC).  On the international scene, there is Veolia Environmental S. A. (NYSE: VE) as well as Companhia de Saneamento Basico do Estado de Sao Paulo (NYSE: SBS) as the international emerging wild cards.  To show just how risky this can be in foreign lands, there is Duoyuan Global Water Inc. (NYSE: DGW) that has been crushed with the batch of reverse-merger companies out of China and which has been halted for some time.  For more diversified picks via ETFs, there are also the PowerShares Water Resources (NYSE: PHO) and the PowerShares Global Water (NYSE: PIO) to consider.

Looking through water investments is often a price-sensitive effort and investors rarely get to buy their favorite water stocks at big discounts.  In utilities, our review for the top pick in 2011 focused on Aqua America Inc. (NYSE: WTR), American Water Works Company, Inc. (NYSE: AWK), American States Water Company (NYSE: AWR) and California Water Service Group (NYSE: CWT).  We also went through the valuations and the outlook for Layne Christensen Company (NASDAQ: LAYN), Tetra Tech Inc. (NASDAQ: TTEK), and Watts Water Technologies, Inc. (NYSE: WTS).  In the land of ETFs, there are the PowerShares Water Resources (NYSE: PHO) and the PowerShares Global Water (NYSE: PIO) depending upon your geographic focus.

There is a clear winner for 2011 and we followed it up with a “runner-up selection” as to which water stock is the best pick for investors in 2011.  We have a basic table below for performance metrics and have added color with support for our top water pick for 2011.

Predicting markets and economic patterns is difficult over the next 20 years because there are many unknowns.  After all, who will be President in 2016?  What will tax laws be in 2020?  Which of today’s deadly diseases will be cured in 2020?  Which regions will experience wars by 2020?  This is why futurism may be one of the more unique approaches in investing. ETFs are often called the mutual funds of the future and our goal is to meld a futurist outlook into an investing strategies.

A rule of long-term investing is that what investments feel good today, such as those in Chinese and Indian markets, may not generate returns tomorrow.  Investors will face short-term pain for long-term gain. Futurists are always thinking beyond the next recession and the next boom behind it.

Beyond Emerging Markets… Frontier Markets

If you are thinking about China or India over the next 10 to 20 years, there is plenty to consider.  Both countries have grown exponentially as they became some of the world’s largest economies. Think post-Chindia and post-BRIC.  ”Frontier markets,” a term which has come up in recent years that goes beyond ‘emerging markets’ is ‘frontier markets.’  These “frontier market” economies still have room for growth.  Perhaps nothing illustrates this better than The NatGeo World Map at Night.

When it come to Africa and other Frontier Markets, there are three exchange-listed vehicles that we usually choose.  All are generally more volatile than the broader market stock indexes in the developed world.  Many frontier funds base performance  off of the MSCI Emerging Markets Index rather than the S&P 500.

Morgan Stanley Frontier Emerging Market Funds, Inc. (NYSE: FFD) is a small closed-end fund with roughly $105 million in assets.  This fund has diverse investments in banks, breweries, miners and utilities.  At its semi-annual report, the fund listed holdings in 21 nations including Nigeria, Argentina, Bangladesh, U.A.E., Kenya, Kuwait, Pakistan, Serbia, Qatar, Lebanon and Greece.  Average volume is light at just under 20,000 shares in a day and its 52-week range is $10.52 to $15.23.

Market Vectors Africa Index ETF (NYSE: AFK) from Van Eck seeks to track the performance of the Dow Jones Africa Titans 50 Index, which is full of companies that are headquartered in Africa or that generate the majority of their revenues in Africa.  It holds banks, breweries, miners, utilities, and more.  South Africa is where the largest number of the fund’s holdings are based. Assets under management were listed as $92 million in mid-November, its 52-week trading range is $26.60 to $34.88, and average daily volume is close to 25,000 shares per day.

iShares MSCI South Africa Index (NYSE: EZA) is an ETF that seeks to track the MSCI South Africa Index and it is one of the largest  vehicles out there since South Africa has a more established markets and is more politically stable compared with other African nations.  The fund invests in South African companies and has roughly $520 million in assets.  It trades close to 400,000 shares a day, and its 52-week range is in the low-$50s to $72.77 (flash crash low was listed as $23.00).  Its holdings include Anglo Platinum, AngloGold Ashanti, Firstrand, Gold Fields Ltd., Sasol, and Standard Bank.

Is Africa risky?  Are many other nations in the Frontiers markets risky? Absolutely.  But many of these nations have some of the biggest undisturbed deposits of natural resources.  That’s why we have highlighted these ETF and fund products rather than make individual picks.

Are You Ready For The International Water Wars?

Americans, Canadians, and many Europeans take potable water for granted.  However, Montezuma’s Revenge and many water-borne illnesses are rather common around the globe.  Building water filtration systems and desalination plants is costly. Nations are already setting limits on water resources.  Don’t ever discount the future of water.  Wars could be fought over potable water sources.  If you refer to that Nat-Geo World at Night Map, you can guess where much of the water resources are needed.

Many speculators have invested in the water industry for years.  It is no wonder that GE, 3M, and many other conglomerates have invested in the sector.  PowerShares Global Water (NYSE: PIO) and PowerShares Water Resources (NYSE: PHO) are two ETFs that compete in the world of water investing.

The PowerShares Water Resources (NYSE: PHO) seeks to track the Palisades Water index and it tends to have more of a U.S. focus.  Of course, many of these companies were hurt because they built new infrastructure ahead of housing developments that were scraped when the bubble burst.  PowerShares Water U.S. assets are close to $1 billion. It trades well over 200,000 shares per day, and its 52-week range is $14.70 to $18.68. (outside flash crash listed low of $6.99) to $18.68.

The PowerShares Global Water (NYSE: PIO) seeks to track the Palisades Global Water index, and it invests in U.S. companies and large international companies.  This is a smaller fund than the domestic water fund (PHO) from PowerShares.  Still,  it has more than $300 million in assets and trades close to 60,000 shares per day, and it has a 52-week range of $15.60 to $19.46.

J.P. Morgan Asset Management and Water Asset Management acquired Southwest Water, and that Water Asset Management is a private investment vehicle.  These are four small water mutual funds: Kinetics Water Infrastructure Advantaged Fund (KWIAX), PFW Water Fund (PFWAX), Allianz RCM Global Water Fund (AWTAX), and Calvert Global Water Fund (CFWAX).

NANO-NANO… Take Me To Your InnerSpace

The word nanotechnology, or nanotech for short, is another futurist technology. Many aspects of nanotechnology are already in use today in chemicals and other products.  This may also be one of the most controversial issues in the world of technology.  Think about atomic and molecular scale systems comprised of compounds between 1 to 100 nanometers, or one billionth of a meter.  There have been fortunes made by investors and there have been many fortunes lost.

Imagine machines so small that they could operate and move freely in your blood.  Imagine coatings that are comprised of molecules and materials small enough that they get a perfectly flat surface.  Unfortunately, you also have to consider toxicity, regulation, and the potential for a destructive use for such small products.  There is one ETF in the PowerShares Lux Nanotech (NYSE: PXN).

The PowerShares Lux Nanotech (NYSE: PXN) from Invesco seeks to track the the Lux Nanotech index.  It is comprised of some well-known companies and many companies have nanotech as a portion of their business.  The ETF has been around since the end of 2005 and has never recaptured its former highs.  It is also small at about $6 million in assets and trades under 25,000 shares a day on average.  Its 52-week range is $7.74 to $10.85.  Some of the companies in the fund include A123 Systems, Elan, 3M, GE, and Headwaters; but this ETF has some very risky and very volatile holdings as well.

Harris & Harris Group, Inc. (NASDAQ: TINY) is a nanotech venture capital fund whose website address tinytechvc.com tells what it is all about.  Its market capitalization is roughly $137 million, it trades close to 100,000 shares per day, and its 52-week range is $3.70 to $5.50.  While this is not a fund, it is close enough as the VC-company’s portfolio has more than 30 investment company holdings.  The company claimed a net asset value of $4.51 per share as of September 30, 2010, but founder Charles Harris also passed away at the end of September 2010.

Advanced Batteries… High on Lithium

All of those rechargeable batteries, batteries in consumer electronics and electric cars need lithium, which makes it a trend for futurists to consider.  There are two key risks here for this precious commodity: it could eventually run out or become uneconomical.  Moreover, China and Russia are major suppliers, which gives the sector an element of political instability.

Is it possible a better technology could come along?  Of course.  Still, there are many opportunities in the industry and it is probably no accident that behemoths such as General Electric have already invested in advanced batteries and have vowed to continue to do so. Lithium demand has nearly doubled in the past decade from above 15,000 metric tons in 2002 and is expected to rise to 55,000 metric tons by 2020 , according to the TRU Group.

Global X Lithium ETF (NYSE: LIT) is a very new ETF that launched in the summer and its holdings are solely in companies active in exploring and mining of lithium and producing lithium batteries.  So far it has been a big success.  The fund seeks to track the Solactive Global Lithium Index. Some key holdings are Sociedad Quimica Y Minera De Chile (above 22% of the fund), FMC Corp., Rockwood Holdings, Sanyo Electric, Ener1 and A123 Systems.  Assets under management are $91.5 million, it trades over 100,000 shares on an average day, in a range of $15.63 to $21.30.
Alternative Energy, In A Broader Sense

Investing in alternative energy may hold the promise of the future.  It has also been very painful even for futurists with a decade or longer outlook.  True futurists may seek an answer out of wind, solar, wave, geothermal, biofuels and even nuclear energy.  Not all alternative energy is technically renewable.  But the world needs alternative energy sources.  That is no longer even debated in public by most oil executives.

A problem that arises even for futurists with a ten-year outlook or longer is that the oil and gas giants of today may be the leaders of alternative energy in the future.  BP plc (NYSE: BP) has one of the worlds largest solar operations, and it is not unchallenged by other oil and gas giants.  Another caveat is that you do not need to be a futurist to see how many alternative energy and renewable energy investments are often considered nothing more than highly leveraged bets against the future price of oil.

PowerShares WilderHill Clean Energy (NYSE: PBW) is one of the go-to ETF products in alternative energy.  The fund is meant to track the performance of the WilderHill Clean Energy index.  Its largest holdings do seem to be more geared toward solar, which is most established alternative energy technology.  Some of its key components are First Solar, Broadwind Energy, IDACORP, JA Solar, and Suntech Power.  The fund has more than $550 million in assets, it trades over 300,000 shares per day, and its 52-week range is roughly $8.25 to $11.95.  The biggest issue is performance as it was worth over $25 at the 2008 peak versus close to $10.00 currently.

PowerShares Cleantech (NYSE: PZD) is the international and smaller competing version of the PowerShares Wilderhill Clean Energy ETF.  It is meant to track the price and yield performance of the Cleantech index.  Some of its top holdings are ABB, Corning, First Solar, IBERDROLA, Novozymes, Siemens, and Vestas Wind Systems.  Assets are about $150 million, it trades only about 14,000 shares a day and its 52-week range is $20.00 to $25.95.  This too suffers from poor performance as its shares were above $35.00 in the 2008 peak versus under $25 today.

An even more international focus in clean energy is the PowerShares Global Clean Energy (NYSE: PBD).  Its focus is to track the performance of the WilderHill New Energy Global Innovation index and many more companies are global.  Most of its larger constituent members are not known to most US investors.  The market cap is fairly small at about $160 million, it trades about 40,000 shares a day, and its 52-week range is $11.51 to $17.64.  It is far from alone in performance anxiety as this was above $30 at the peak and it is closer to $13.00 in November-2010.

Rare Earth… Not So Rare, But….

Any investors thinking of investing in rare earth should consider what happened in 2010 before putting on a futurist’s hat and taking a shot.   All caveats aside, nations such as the United States have to depend upon foreign sources of rare earth materials and these are critical for defense equipment  autos, clean energy, electronics and medical devices.  It is vital that these REOs and REEs have a local source and it is vital that we have our own sources.  The risks in investing in this might be like comparing biotech to DJIA components.  Futurists down the road will likely concede that many of the companies in this field were little more than Hail Mary passes with a story rather than real assets that could be monetized economically.

The Market Vectors Rare Earth/Strategic Metals ETF (NYSE: REMX) is the only current fund-oriented instrument that revolves around the REE and REO trade.  It is extremely new, its methodology is unproven, and its company constituents are often very risky companies with promises rather than operating histories.  The launch came at the end of October-2008 and it has been very actively traded.  For 2010, we are going to not discuss price ranges, performance, and more because of all the risks here.  Either way and regardless of how this performs, the rare earth theme is unlikely a theme that purchasing managers will not have to consider for the future.

Back to futurists and secular themes in general…

If you want to learn more about futurist thoughts and ideas, one source I have used for some time is the World Future Society.  This is not an investment web site.  It has offered insight for futurists and those who think beyond the next month for years and years.  It publishes The Futurist magazine, has free email newsletters, conferences, books, blogs, and links to many local chapters throughout the U.S. and around the world.

Predicting markets and sectors is a tricky game, and most forecasting models have a hard enough time getting the next week or month accurate.  Modeling for a decade or a generation is that much harder.

JON C.  OGG

For starters, many reports have been out about water’s scarcity and that securing potable water reserves in the future will be a challenge for many nations for the decades ahead.  This is where the term “The International Water Wars” comes from.  Making a blanket investment in water has so far been a difficult trend.  The sector has given large rewards in some cases, and been very painful in other cases.

We are reviewing American Water Works Company, Inc. (NYSE: AWK), Badger Meter, Inc. (NYSE: BMI), Tetra Tech Inc. (NASDAQ: TTEK), Watts Water Technologies,  Inc. (NYSE: WTS) and Veolia Environnement S.A. (NYSE: VE).  For more diversified picks via ETFs, there are also the PowerShares Water Resources (NYSE: PHO) and the PowerShares Global Water (NYSE: PIO) to consider.  Lastly there are two BRIC stocks that will require a judgment of your own, but those are Duoyuan Global Water Inc. (NYSE: DGW) and Companhia de Saneamento Basico do Estado de Sao Paulo (NYSE: SBS) as the international emerging wild cards.

There are some key risks ahead in water that make investing in water not as sound as investing in other futurist asset classes. For starters, many ‘water companies’ grew because they were building new large infrastructure projects for all of those new housing communities that were built from the 1990′s to 2007.  That business is gone for now, and many feel that it may be years before that business comes back in any meaningful way.  Another huge risk is that water is unfortunately not immune to the economy, even if you die after a few days without water.  Local, state, and even national governments around the world have to be able to pay for water investments via taxes, and we know how budgets are under pressure on all angles top to bottom.  Another risk is protection and seizure, where local government may declare that water is a public asset and we have already seen many local and regional instances where the exporting or transporting of water away has been blocked.  You have also likely heard where local communities are trying to prevent water companies from taking the local water and selling it elsewhere.  Another consideration is that there is a movement against bottled water today despite the notion that local tap water is often contaminated, tastes bad, and is believed to contain trace elements of pharmaceutical products.

CURRENT DOMESTIC STOCK PICKS IN WATER

American Water Works Company, Inc. (NYSE: AWK) is our single best pure-play in water for the U.S. investor of our investing universe.  This was one of our top defensive stock picks and it recently bumped up its dividend.  American Water is the largest public water and waste water utility in the U.S. and it serves about 16 million people spread across 35 states and two Canadian provinces.  This is not what investors would consider a home run stock, but it is also one that doesn’t strike investors out.

An implied dividend yield now of 3.8% is also a solid reward considering the investment climate for bonds and that many utility investments have mixed histories.  This one offers water investors, defensive investors, and income investors the same outcome.  At $23.15, its 52-week range is $18.91 to $23.77.  No bottled water here; think tap water, showers, sprinkler water, toilet water, and water for industries.  Investors hate paying at the 52-week highs, so any sizable pullback here should be used as a buying opportunity.

The stocks and tickers discussed today were as follows:

• Aqua America (WTR)
• Insituform (INSU) 
• SAM Sustainable Water Fund (SMWIX)
• PowerShares Global Water (PIO)
• American Water Works… upcoming IPO
• Coca-Cola (KO)

If you are an investor that wants to invest in water or interested in learning about water investing you’ll want to listen to the report that lasts only about 9 minutes or so.  This is not covering only the bullish side and not meant as a tout for any single water stocks.