Ann: Initial Director's Interest Notice - SD-D2O.AX, page-11

At the end of the day, water is a commodity. Like any hard commodity, it is highly supply/demand sensitive. Over the medium to longer term, it has very strong thematics given its (relative) scarcity and inability to be substituted at any price. However, in the shorter term, prices will move in relation to demand and supply like anything else.

The price of entitlements can be impacted by location and water availability issues in the short term. It also obviously depends on what sort of entitlements they are (i.e. surface water or groundwater), region and security level.

In theory, the value of entitlements should reflect the long-term average annual water allocation and the associated value that can be extracted. But it tends to be a slightly imperfect relationship.

The Allocation market is more volatile driven by responsiveness to short-term supply and demand. This in turn is driven by seasonal climatic conditions which influences allocation levels, system flows, storage levels, evaporation levels and commodity outlook (widespread drought between 2012-2015 has been instrumental in driving prices). But this basically generates the yield of the entitlement (assuming you are a trader not a consumer of water).

So, what's the outlook? Well, you basically have to predict rainfall. Good luck Personally I think trying to predict allocation prices over the short/medium term is not really the point if you are a long term investor. Rather, consider the place water as an investment might have in a portfolio and the returns it may generate over the longer term. Particularly, look at it from the point of view of asset correlations. Water has no systematic correlation with any of the other major asset classes.

At the end of the day, water availability is basically expected to decline over the long term. This is the value proposition. Duxton may or may not be the right expression of capturing that value proposition. But IMO the thematic is sound over the long term.