A precious resource: investing in the fate of fresh water.

The price of oil may be flirting with $100 a barrel, but water may be more precious in the years to come. The earth's supply of drinkable water is on the decline, yet the world population is on the rise, at 6.6 billion and counting.

Investors are taking notice, heeding the basic rules of supply and demand. For basic needs, each person requires five to 13 gallons of water free from contaminants daily, according to the United Nations. Groundwater levels in many parts of the world have been depleted, and droughts are wreaking havoc on food production. Meanwhile, about 1.1 billion people do not have access to a water supply, with the bulk living in Asia and Africa. "Water is the only commodity that has absolutely no substitute at any price," says John Dickerson, chief executive officer of Summit Global Management, a San Diego-based investment manager.

Supply and demand is just one thing on the water industry's side. Developed countries are facing aging infrastructures, and emerging economies around the world are mandating that their governments increase water quality standards to mirror those of more developed countries--creating demand for everything from water mains and pumps to irrigation and purification equipment.

In such an environment, there should be plenty of demand for water stocks going forward. The water industry generates an estimated $400 billion worldwide in annual revenues, according to Terrapin Partners, an investment manager based in New York City. "Despite its size and growth, water is an under-followed sector," says Jeff Czarniak, a portfolio manager of the Terrapin Water Fund, a $57 million hedge fund with holdings in both privately and publicly traded companies.

One way to get exposure to water is through exchange-traded funds, such as Power Shares Water Resources (PHO), which tracks companies of the American Stock Exchange's Palisades Water index. The ETF holds utilities such as Aqua America Inc. (WTR) and Southwest Water Co. (SWWC), and industrials such as General Electric Co. (GE) and Valmont Industries Inc. (VMI).

For more of an international mix, PowerShares Global Water (PIO) focuses on the Palisades Global Water index, which has a mix of U.S. and international companies. Compared with PowerShares Water Resources, the international version tends to invest with companies that have a higher concentration devoted to water-related services and products, notes Czarniak. Another ETF with a worldwide focus is Claymore S&P Global Water (CGW), which corresponds to S&P's Global Water index. And First Trust ISE Water (FIW) offers a mix of U.S. and international companies.

Though direct exposure to Africa is a hard find, there are private companies pursuing solutions to the continent's dire need of clean water and sanitation. Yet, a main sticking point is the lack of strong economies to support the building of infrastructures, Czarniak notes. For the little investment that there is, investors generally get second-hand exposure by investing in ETFs or conglomerates.

HOLDING THEIR OWN: WATER ETFs

Fund                                   Return

Claymore S&P Global (CGW)             Unchanged

First Trust ISE Water (FIW)               5%

PowerShares Global Water (PIO)       Unchanged *

PowerShares Water Resources (PHO)         1%

S&P 500                                   3%

Russell 2000                             -9%

FOR SIX MONTHS ENDED 11/30/07

* SINCE INCEPTION IN JUNE 2007