30 Apr Water Opportunities Separately Managed Account Program (WO SMAP) Market Update
After many discussions with, Water Asset Management, sub-adviser to ELCO’s Water Opportunities SMAP, and our own industry observations, we wanted to communicate our thoughts regarding your investment in the program. The portfolio has benefitted from the defensive nature of the regulated water utilities and the essential infrastructure and services these companies provide. However, there are other fundamental reasons to be positive on the space including the fragmented nature of the U.S. water municipalities, a growing number of states adopting fair market valuations for acquisitions, and the industry’s thematic “ESG” characteristics.
ELCO Water Scarcity
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Our holdings in the ELCO Regional Banks Separately Managed Account program were severely challenged by the COVID-19 pandemic. Regional and community bank stocks have been pressured due to the unprecedented hardship from the pandemic-induced slowdown due to skyrocketing unemployment that has increased the default risk across loan portfolios.
After many discussions with, Water Asset Management, sub-adviser to ELCO’s Water Opportunities SMAP, and our own industry observations, we wanted to communicate our thoughts regarding your investment in the program. The portfolio has benefitted from the defensive nature of the regulated water utilities and the essential infrastructure and services these companies provide.
We wanted to reassure you that your portfolio is invested in the highest quality companies that have rock solid balance sheets, commanding market presence, and most importantly the ability to survive this pause in economic activity and thrive as growth returns.
While not completely an “apples to apples” comparison, the current extreme environment is reminiscent of the 2008 experience which also wreaked havoc on the midstream industry. At that time, oil prices collapsed, and midstream companies sold off due to leveraged investor liquidations and the overall lack of confidence the industry could sustain its cash-flow and dividend payments
At this very difficult moment, we want to reach out to re-affirm our commitment to you, as a client of the firm. First and foremost, we hope this update finds you and your families healthy and safe as our society collectively works to stem the impact of the global Coronavirus pandemic.