NEW YORK (TheStreet) - Honestly, I've heard the macro-economic case for investing in the water industry many times in the last half-decade. In fact, I've probably written my fair share of features, explaining how population growth is pushing demand at the expense of a limited, uncontaminated supply.
Yet, funds like
PowerShares Water Resources
Claymore Guggenheim S&P Global Water
have recently catapulted to the forefront of investor imagination. After struggling through the first half of 2010, the second half has been clear sailing.
So what's with the big time jump in share prices in water companies? Is it as simple as an outflow from bonds and an inflow into riskier assets? I don't think so.
Let's take a look at another turnaround sub-segment, "oil services." Early in 2010, we all witnessed one of the worst environmental disasters in U.S. history, courtesy of
. Few corporations struggled as mightily as the oil services providers, from
And yet, the beaten-to-smithereens sub-sector has worked its way from the sludge-filled oil bottom, all the way back up to the 90th percentile in the relative strength rankings. Look at the progress of
iShares DJ Oil Services
Oil Services HOLDRs
over the last six months.
Okay, so oil services companies deal with the world's most important commodity for industrialization, "black gold." And water corporations deal with the world's most critical commodity to support life, "agua." Does this mean that the sub-sectors with the largest relative strength swings are a reflection of the emerging market growth story?
Hmmmm, maybe. However, the final sub-sector is not tied to essential commodities.
Specifically, Semiconductor ETFs have gone from the lowest decile in relative strength rank to the highest decile in relative strength rank in just three months.
were practically tossed overboard in the first half of 2010. Today, they're being purchased like there is no tomorrow.
So if it's not just about reflated commodity demand, what might the turnaround sub-segments be telling us? Perhaps we're looking at reflation of the entire global industrial cycle. If that's the case, you might expect out-performance from those sectors and sub-sectors that shine early in business cycles, from software to semiconductors and from energy to emerging market infrastructure.
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