Hydrogen ETFs: where should you invest in and why

Hydrogen will become crucial for tackling climate change and preserving ecosystems. Investing in hydrogen ETFs therefore represents a unique opportunity to ride the trend of green energy.

With institutions and companies focused on the production and storage of clean energy, hydrogen in fact promises to be the key element of the green revolution. Investing in hydrogen ETFs can have a significant impact on eco-friendly mobility and the climate change fight.

In this guide, we’ll look at the best hydrogen ETFs and how to choose them.

What are hydrogen ETFs

Hydrogen ETFs, also known as Exchange-Traded Funds, are innovative financial instruments that allow investors to participate in the hydrogen market, a rapidly growing sector in the field of renewable and sustainable energies (green economy). These funds are designed to track the performance of an index or group of companies involved in the production, use and development of hydrogen as an energy carrier.

Hydrogen ETFs offer an efficient and diversified way to invest in the growing sustainable energy industry, without the need to buy individual shares.

With a single purchase, investors can get a stake in several companies involved in the hydrogen value chain, reducing the risk associated with a single stock.

Hydrogen, a clean fuel with diverse applications, has diverse extraction sources and varying environmental impacts. There are 5 types of hydrogen: green (from electrolysis with renewables), purple (from nuclear electrolysis), blue (from fossil hydrocarbons), gray (from methane), and black (from petroleum). The first four types are the most promising and could drive a new trend in industry and the economy.

Currently, hydrogen is expensive and uncompetitive with fossil fuels, but reducing costs could make it a viable and sustainable alternative.

Which hydrogen ETFs to choose

Here are some parameters to consider when choosing the best Hydrogen ETF:

• Composition of the fund: Make sure it includes solid and well-positioned hydrogen companies.

• Benchmark: Understand the ETF’s market.

• Fund size: prefer ETFs with assets over 50 million dollars or euros for greater liquidity and reduced costs.

• 1-year and 3-year return/risk: evaluate the ETF’s past behavior and future potential.

• One-Year Percentage Return: Know the ETF’s return over the past year.

• Volatility: evaluate the stability of the ETF.

• Costs (TER): Consider the impact of costs on long-term returns.

• Number of holdings: Greater diversification with a large number of holdings.

Let’s now look at an overview of some interesting options for those looking for the best hydrogen ETFs:

1) VanEck Vectors Hydrogen Economy ETF

• Tracks the MVIS Global Hydrogen Economy Index, investing in the leading global companies in the hydrogen industry.

• Geographic distribution of assets: United States (38.71%), United Kingdom (18.14%), Canada (10.15%), France (9.02%), Japan (8.14%), and others.

• Top 5 Stocks: Plug Power (10.45%), Ballard Power Systems (8.89%), Nikola Corp (8.32%), Mitsubishi Chemical Holdings (8.14%), Air Liquide (8.03 %).

• Assets under management: 44 million euros.

2) L&G Hydrogen Economy UCITS ETF

• Invests exclusively in global hydrogen companies.

• Total replication strategy of the Solactive Hydrogen Economy index.

• Top 5 Stocks: Doorsan Fuel Cell (4.05%), Kolon Industries (4.04%), Cell Impact AB (3.95%), Plug Power (3.89%), Toyota Motor (3.84 %).

• Assets under management: 389 million euros.

3) iShares Global Energy UCITS ETF

• Invests in the clean energy market in general, including the hydrogen industry.

• Tracks the S&P Global Clean Energy Index.

• Top 5 Stocks: Orsted (7.59%), Vestas Wind Systems (7.58%), Enphase Energy (6.80%), NextEra Energy (4.28%), Xcel Energy (4.20%) .

• Assets under management: $1,181 million.

4) L&G Energy UCITS ETF

• Invests in various renewable energies, including the hydrogen industry.

• Replicate global companies’ performance.

• Top 5 stocks: Ameresco Inc (2.70%), Solarpack Corp (2.53%), Covanta Holding (2.40%), Alfen (2.38%), Hundai Engineering & Construction (2.36% ).

• Assets under management: $97 million.

5) Lyxor New Energy (DR) UCITS ETF

• Tracks the World Alternative Energy Index, which includes the 40 largest alternative energy companies.

• Top 5 stocks: Schneider Electric (15.72%), Orsted (9.85%), Carrier Global Corp (6.99%), Vestas Wind Systems (5.89%), STMicroelectronics (5.71%) .

• It is listed on several stock exchanges including Borsa Italiana and Euronext Paris.

• Assets under management: $1,181 million.

Why invest in hydrogen ETFs

These financial instruments are gaining more and more interest among investors, as the use of hydrogen promises to be a key solution to address climate change problems and achieve a transition towards a more sustainable energy future.

Investing in hydrogen ETFs offers promising opportunities across different sectors of the economy thanks to the major transformations expected. The use of hydrogen is already consolidated in industry for refine oil, produce ammonia and steel. Research accelerates towards the use of hydrogen as an oil substitute to fuel engines of all sizes, prompting significant growth in demand. With the potential to power vehicles and produce clean energy, hydrogen could revolutionize industry and transportation.

In light of the 300% growth in hydrogen demand from 1975 to 2018, a real boom is expected as hydrogen technologies expand into various economic sectors. The global green hydrogen market, valued at $1 billion in 2021, is projected to reach $72 billion by 2030, at a CAGR of 55%.

Hydrogen ETFs are a way to seize this investment opportunity in the sustainable future.

Investing in hydrogen ETFs offers several advantages:

• easy and diversified access to the hydrogen market,

• liquidity thanks to listings on various stock exchanges,

• management costs contained for passively managed ETFs.

However, there are also disadvantages, such as the risk associated with the market still under development, with the volatility of hydrogen prices and the demand uncertainty.

Additionally, hydrogen ETFs may be subject to tax, which could reduce investors’ earnings.

Original article published on Money.it Italy 2023-08-01 19:10:00. Original title: ETF idrogeno: quali scegliere per investire e perché