Time to Get Into Water

NEW YORK (TheStreet) -- I'm a proponent of the notion that water should be viewed as an asset class, appropriate for inclusion in investor's portfolios, but in small amounts.

We certainly can't live without water, and in general, potable water is in short supply. It has been estimated that 97.5% of the earth's water supply contains too much salt for human consumption, leaving just 2.5% that is fresh water. But two-thirds of the fresh water is frozen in glaciers and ice caps, so the supply is indeed limited.

Unlike oil, however, water is a renewable resource. Theoretically, the supply does not change over time; what is consumed or evaporated eventually returns. The problem is that it does not always return to the places where it is needed, and what is taken for granted in some areas is in very short supply in others. Or, there's simply too much of it, and devastating floods are the result.

The choices for obtaining exposure to water in a portfolio sense are somewhat limited. However, it can be done. I've obtained my exposure via companies that own water in the ground, although this is often just a part of their operation.

One example is La Jolla, California-based PICO Holdings (PICO), a mini-conglomerate, which owns the Vidler Water Company. Vidler develops new sources of water primarily in the southwestern part of the US, an area known for being very dry. The company owns a significant array of water and water assets, primarily in Nevada and Arizona.

Vidler generates its revenue by selling water resources for both residential and industrial use, and through water storage. One of the company's major projects, the Fish Springs Ranch (Vidler is 51% owner) was the construction of a 35 mile pipeline designed to deliver 8,000 acre feet annually to an area north of Reno Nevada. Unfortunately, this project has suffered due to the poor economy.

Vidler Water represents a small fraction of PICO's total revenue, but 46% of the company's net assets. PICO's performance has been disappointing in recent years, to say the least, and it has been a difficult company for investors to understand.

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