Product Panel: LGIM’s hydrogen economy ETF

HTWO is Europe's first ETF to offer exposure to the hydrogen economy

Tom Eckett

a group of people posing for the camera

ETF Stream’s Product Panel has highlighted some of the benefits and potential risks of Legal & General Investment Management’s latest thematic ETF launch.

Last week, the firm unveiled Europe’s first ETF to offer exposure to the hydrogen economy, the L&G Hydrogen Economy UCITS ETF (HTWO).

HTWO tracks the Solactive Hydrogen Economy index which incorporates companies involved in the transition to a low-carbon, hydrogen economy.

Commenting on the launch, Howie Li (pictured), head of ETFs at LGIM, said: “Access to clean hydrogen will be key to lowering emissions in harder to abate industries where electrification alone is not enough.

“The commitments being made to the hydrogen economy by governments and businesses around the world are creating long-term investment opportunities with short-term catalysts.”

What the panel says:

Irene Bauer (pictured centre), CIO, Twenty20 Investments

It is great to see LGIM extend their already quite impressive range of innovative thematic ETFs with their new L&G Hydrogen Economy UCITS ETF (HTWO).

Hydrogen-powered electricity, and fuel cells, in particular, seemed to be all the rage in the early 2000s. With better technology nowadays and battery-powered electricity not being quite as clean, the technology seems to be making a comeback.

And now that nearly every country in the world is trying to reduce their carbon footprint in earnest, from China to the US, this ETF has a very good growth opportunity.

Peter Sleep (pictured right), senior investment manager, 7IM

The hydrogen theme is a neat idea, but not one for me. The companies in the ETF break into two groups – the boring stocks and the theme stocks. The boring part you find in many thematic ETFs, padding them out. In this case companies like Toyota, Daimler, Cummins, Hyundai Motor and Kyocera. All large companies whose share price movement may relate to factors other than hydrogen.

The theme stocks have caught the imagination of investors already. The biggest stock in the ETF is FuelCell Energy which has a 22% weighting at the time of writing. The stock has risen from $2 a share to $27 a share in 3 months. This is exceptional, but a lot of the theme stocks are up about 400% in one year which might suggest a lot of chips have already been laid.

Briegel Leitao (pictured left), associate analyst, manager research, passive strategies, Morningstar

This thematic launch stands out among the recent glut of low carbon ETF launches. The first of its kind globally, the fund selects firms involved in the development of hydrogen fuel cell technology. These primarily industrial holdings include US-based FuelCell Energy, which designs, manufactures and operates fuel cell power plants that run on natural and biogas.

With just 28 holdings this fund provides targeted exposure to a potentially exponential technology. That said, investors should take note that the narrow focus also results in some significant single stock bets. For example, at the time of launch FuelCell Energy represented 22% of fund holdings.

While the fund is relatively costly at 0.49%, it is cheaper than its most comparable rival iClima Global Decarbonisation Enablers UCITS ETF (CLMA) which sports a TER of 0.65%.