Legal & General Investment Management (LGIM) has launched an ETF providing exposure to companies actively engaged in the hydrogen industry.
LGIM’s new ‘hydrogen economy’ ETF provides exposure to companies such as hydrogen fuel cell power plant manufacturer FuelCell Energy.
The L&G Hydrogen Economy UCITS ETF has listed on London Stock Exchange in US dollars (HTWO LN) and pound sterling (HTWG LN), on Xetra (HTMW GY) and Borsa Italiana (HTWO IM) in euros, and on SIX Swiss Exchange (HTWO SW) in Swiss francs.
The fund is based on the Solactive Hydrogen Economy Index and is thought to be the first pure-play ETF targeting the ‘hydrogen economy’ theme.
The term hydrogen economy encapsulates a vision of a clean energy future in which the pre-eminent energy source is hydrogen. It envisions the widespread use of hydrogen as a fuel for heating and powering vehicles, and in energy storage.
LGIM notes that traditional energy industries are increasingly being encouraged to switch to sustainable inputs, such as hydrogen, which, according to the International Energy Agency, could reduce global CO2 emissions by up to 830 million tonnes.
The hydrogen industry is also expected to benefit from ongoing technological advances and cheaper components. LGIM cites Bank of America research suggesting that the global hydrogen industry could be worth $2.5 trillion in revenues and $11 trillion in infrastructure potential by 2050.
‘Key to lowering emissions’
Commenting on the launch, Howie Li, 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.
“We believe this fund offers investors early access to this fast-evolving industry and allows investors the ability to control the amount of hydrogen exposure into their portfolio alongside our clean energy and battery ETFs. As a package, the hydrogen ETF will complement these other two funds to provide investors with the ability to capture growth to be found in clean energy generation and energy storage.”
James Crossley, Head of UK Retail Sales at LGIM, added: “At LGIM, we believe in giving investors targeted, specific exposure to the full value chain of low-carbon solutions across the power production, storage and distribution energy cycles. The launch of the L&G Hydrogen Economy UCITS ETF expands on our market-leading thematic range and underscores our commitment to equipping investors with the portfolio tools they need to gain access to the key themes that will help us transition to a more sustainable world.”
Axel Haus, Team Head Qualitative Research at Solactive, said: “Hydrogen is the cleanest energy carrier with zero carbon emissions during combustion. Its potential becomes apparent in the context of the ambitious Paris Agreement to limit global warming. As advancements in hydrogen technology are increasing, costs among the entire production and value chain of hydrogen are decreasing. Therefore, we envision great potential in LGIM’s new L&G Hydrogen Economy UCITS ETF, and we cannot wait to strengthen our relationship in the field of thematic investing with them going forward.”
Index methodology
The fund’s underlying index selects its constituents from a universe of developed market stocks with market capitalizations above $200 million ($150m for current index components) and average daily trading values greater than $1m.
Using insights from London-based consultancy GlobalData, the universe is screened to identify companies involved in the hydrogen value-chain including electrolyzer manufacturers, hydrogen producers, fuel-cell manufacturers, specialist mobility providers, fuel-cell component suppliers, key industrial and utility companies, and others in the supply chain.
Involvement in the hydrogen value-chain is determined by analyzing publicly available information such as a firm’s products and services, announcements, annual or quarterly filings, M&A deals, contracts, and regulatory sites, as well as GlobalData’s own market intelligence expertise.
Constituents must also pass LGIM’s ‘Future World Protection’ screen which removes companies failing to meet globally accepted business practices on human rights and sustainability or LGIM’s minimum requirements on the carbon transition.
Constituents in the index are equally weighted, although certain stocks with lower liquidity may be assigned caps between 1% and 3%. The index is rebalanced on a semi-annual basis. If, however, any constituent exceeds a weight of 15% at monthly reviews, the index will undergo an extraordinary rebalance.
As of 9 February, the index contained 28 stocks. Companies from the US accounted for 41.3% of total exposure with the next largest country weights being the UK (10.9%), South Korea (8.3%), and Germany (7.3%).
FuelCell Energy, a US-based manufacturer and operator of direct fuel cell power plants, currently accounts for an outsized weight of 22.7% as the firm’s stock price has risen roughly 80% over the past month. Other notable constituents include Plug Power (7.0%), Bloom Energy (5.6%), Ballard Power Systems (5.1%), and ITM Power (4.6%).
The ETF comes with an expense ratio of 0.49%. Income is accumulated within the portfolio.
The fund brings the number of ETFs in LGIM’s thematic offering to ten. This includes the aforementioned L&G Clean Energy UCITS ETF (RENW LN), which launched in November, and more established $680m L&G Battery Value-Chain UCITS ETF (BATT LN), both of which might be of interest to investors weighing up the new hydrogen play.