The Fund will seek to generate total returns similar to equities (split between income & capital growth) with a commensurate level of volatility but will have the advantage in possessing an alternative source of beta largely uncorrelated to mainstream asset classes.

The Fund philosophy is simple, historically water has not been priced to reflect its economic value however it is now approaching an inflexion point for a re-rating. The presence of an increasingly sophisticated trading market in Australia (who is at the forefront of market trading globally), means that water can increasingly be allowed to trade to its highest economic use.

With strong drivers relating to food security in South East Asia and other developing nations underpinning demand, the industry’s pricing power is accelerating.

Zenith’s View
Successful outcomes in water trading strategies are significantly reliant on the experience of management understanding market drivers, being able to seek out and execute value adding opportunities and crystallise returns outcomes.

Zenith is of the opinion that the Investment Manager has sufficient depth and experience in its personnel to be able to generate solid outcomes and has invested a significant amount of time and effort in developing market data and trading networks.

This is an asset class with barriers to entry mainly revolving around ability and experience which the Investment Manager possesses and there is still some level of first mover advantage to be had from entering into this asset class as a fund manager at a time where the market is becoming more efficient and is likely to attract further investment capital.

In Zenith’s opinion, the Blue Sky Water Fund may be suitable for investors seeking exposure to risk and total returns similar to equities but from an alternative source which is largely uncorrelated, particularly over the longer term. The specialist focus of the asset class and historical low correlation to other major asset classes is part of the Fund’s appeal.

The thematic focus of the Fund offers excellent exposure to the expected increasing demand in food, fibre and energy, particularly from developing nations. In addition, commodities have historically provided a strong inflation hedge and physical water will be no different.

Zenith sees the Fund as providing an interesting opportunity to access an alternative beta source with strong thematic principles, partnering with an emerging Investment Manager whose key experience in this field is a significant positive feature.

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