VanEck has launched a new thematic equity ETF in Europe targeting companies involved in the global hydrogen industry.
Martijn Rozemuller, Head of Europe at VanEck.
The VanEck Vectors Hydrogen Economy UCITS ETF has listed on London Stock Exchange in US dollars (HDRO LN) and pound sterling (HDGB LN), and on Xetra (HDR0 GY) and Borsa Italiana (HDRO IM) in euros.
It is referenced to the MVIS Global Hydrogen Economy Index, an index designed to reflect the performance of the so-called hydrogen economy.
Hydrogen economy
Hydrogen has the potential to become a pre-eminent energy source owing to its abundant and stable supply and near-zero-emissions energy-generation process.
With governments around the world committed to reducing CO2 emissions and in some cases aiming for carbon-neutral or even carbon-free economies, hydrogen is widely considered an essential part of the solution.
According to a McKinsey report, hydrogen energy will play a significant role in multiple sectors by 2050 including shipping, bus transport, steel production, building heating, and electricity storage.
In Europe, the European Commission has placed hydrogen at the centre of its plans for an energy transition and is aiming to have at least 40 gigawatts of electrolyzers (hydrogen production facilities) available by 2030.
“The importance of hydrogen as an elementary energy source and raw material in many areas of industry and economy will continue to grow in order to successfully drive their decarbonization,” said Martijn Rozemuller, Head of Europe at VanEck. “By investing in hydrogen companies, investors can participate in this process and in the long-term development of these companies.”
Dominik Schmaus, Product Manager at VanEck, added: “Investors are increasingly looking for investment opportunities in sustainable technologies and solutions for the future. With our VanEck Vectors Hydrogen Economy UCITS ETF, we offer them the opportunity to invest broadly in the future technology of hydrogen to participate in the long-term CO2 reduction in many sectors of the economy.”
Index construction
The fund’s underlying index – MVIS Global Hydrogen Economy Index – was developed by VanEck’s in-house indexing division, MV Index Solutions (MVIS). It was launched in December 2020.
To be eligible for inclusion in the index, a company must first have a market capitalization exceeding $150 million and have traded at least 250,000 shares per month over the previous six months with three-month average daily trading volume of at least $1m at review and also at the previous two reviews.
The methodology then screens for firms with at least 50% revenue exposure to hydrogen projects including hydrogen producers, fuel cell manufacturers, or companies in the electrolysis sector. (Current constituents can see their revenue threshold drop as low as 25% before they are removed.)
The index also includes companies that have the potential to generate at least 50% of their revenues from the hydrogen industry based on current projects in development.
According to VanEck, this approach provides investors with the most accurate representation of the hydrogen sector possible.
“Together with our index team at MVIS, we have worked to develop the most targeted investment solution in the hydrogen space, differentiating it from the broader solutions that have come before,” said Rozemuller.
Constituents are weighted by float-adjusted market capitalization subject to an individual company cap of 10%. The index is reviewed on a quarterly basis.
Portfolio exposure
Stocks from the US presently account for just over one-third (35.6%) of the index by weight with the next-largest country exposures being Canada (11.3%), France (10.0%), the UK (9.3%), Ireland (9.1%), Japan (8.7%), and Norway (8.5%). Two-thirds (64.9%) of the index is allocated to the industrials sector with the remaining weight in stocks from the materials sector.
There are presently 25 constituents with the top ten positions accounting for a combined weight of almost 80%. They are Ballard Power Systems (10.2%), Linde (8.9%), Air Products & Chemicals (8.8%), Mitsubishi Chemical (8.7%), Air Liquide (8.6%), Plug Power (8.4%), Nel Asa (7.8%), Fuelcell Energy (7.8%), Bloom Energy (6.0%), and Nikola (4.7%). (MVIS data as of close 30 March 2021).
More than half (53.4%) of the index, in terms of weight, is allocated to large-cap stocks, which is defined as those companies with market capitalizations greater than $6bn.
The fund comes with an expense ratio of 0.55%. Income is accumulated.
It is the second ETF in Europe providing access to the global hydrogen industry following last month’s launch of the L&G Hydrogen Economy UCITS ETF (HTWO LN). This fund tracks the Solactive Hydrogen Economy Index and comes with an expense ratio of 0.49%. It already houses nearly $300m in assets, suggesting there is strong demand for the hydrogen investment theme.