Kinetics Water Infrastructure Fund's top holdings reveal specific companies positioned to gain from the urgent upgrade required to America's leaky water delivery systems.

According to the Environmental Protection Agency (EPA), the water sector ranks third among the American government’s total expenditures - trailing only Defence spending and Social Security payments.

Environmental engineer Bill Brennan is passionate about studying global water challenges and opportunities. Mr. Brennan is also President and Managing Partner of Aqua Terra Asset Management and Senior Portfolio Manager of the Praetor Global Water Fund and the Kinetics Water Infrastructure Fund.

America's Deteriorating Water Pipes

During an October 26 interview, Bill Brennan explained that at least half of the 1.5 million miles of drinking water and waste water pipes in the United States are past their useful lives.

In fact, the American Society of Civil Engineers rates the existing water delivery infrastructure in the U.S. a lowly D+. That same group of experts projects that America needs to replace about 73 thousand miles of pipe over the next 12 to 24 months. Pipe leakage has reduced water-pipe delivery efficiency in certain areas of the U.S. by as much as 50%.

Partly due to a focus on Iraq, government spending on water infrastructure has dried up over the past 6 years. American water systems are often labelled an out-of-sight, out-of-mind infrastructure because, unlike other infrastructure investments, most water delivery system components exist below ground.

But the American government may soon be forced to act. Citing the current lack of adequate water supplies in the Greater Atlanta area as one example, Bill Brennan expects a renewed focus on environmental issues and water infrastructure spending after the 2008 presidential elections.

Principal beneficiaries of the spending required to upgrade America’s water systems are water utilities, companies that make water and waste water pipes, as well as suppliers of water system components including motors, valves, membranes and filtration equipment.

Best Water Utilities

The Connecticut Water Company (CTWS on Nasdaq, 4.19% of total portfolio) is the largest domestic investor-owned water utility in New England.

The York Water Company (YORW on Nasdaq, 2.93% of total portfolio) stores, purifies and distributes water to 33 municipalities within Pennsylvania’s York County.

California Water Service Group (CWT on NYSE, 2.07% of total portfolio) is largest investor-owned American water utility west of the Mississippi River, and the second largest in the country.

Best Water Pipe Makers

Northwest Pipe Company (NWPX on Nasdaq, 2.35% of total portfolio) is the leading supplier of large diameter, high-pressure steel pipe products used by American and Canadian water transmission and treatment facilities.

Mueller Industries (MLI on NYSE, 2.14% of total portfolio) sells the broadest tube and fitting product line for plumbing and refrigeration applications available from a single source in the United States.

Best Water System Component Suppliers

ITT Corporation (ITT on NYSE, 4.55% of total portfolio) is Kinetics’ largest stock holding. ITT is the world's premier supplier of pumps, systems and services to move, control and treat water and other fluids.

Watts Water Technologies (WTS on NYSE, 3.62% of total portfolio) designs and manufactures valves and related equipment. These products promote the quality, conservation and control of water used in commercial, residential, industrial and municipal applications.

References

This article presents independent insights based on the research from Aqua Terra Asset Management, Kinetics Water Infrastructure Fund and Bill Brennan’s October 26, 2007 podcast available on Investorideas.com.