This issue’s ETF of the month is Global X’s hydrogen strategy which outperformed its rivals amid a mix of positive signals and supportive government policy
The recent passage of the Inflation Reform Act in the US has given a significant boost to strategies such as the Global X Hydrogen UCITS ETF (HYGN) which had a rough start to life but generated significant returns over the past month.
Launched in February as part of a launch spree by Global X, which came after much of the themed commodity class’s momentum had waned, HYGN is by far the smallest ETF on the theme of hydrogen, amassing just $4 million in assets, however, it has vastly outperformed its peers since launch.
While the $547 million L&G Hydrogen Economy UCITS ETF (HTWO) and the $110 million VanEck Hydrogen Economy UCITS ETF (HDRO) posted returns of -7.9% and -0.5% over the last six months, as of August 23, respectively, HYGN had positive returns of 3.1%.
The same trend also played out in the month leading up to August 23, with HTWO and HDRO returning 4.3% and 9.4% while HYGN continued to lead the pack with a 15.5% gain.
Global X also has an equivalent US-listed product, the $39 million Global X Hydrogen ETF (HYDR), which tracks the Solactive Global Hydrogen Index, while HYGN tracks the Solactive Global Hydrogen Index v2.
Interestingly, the European product’s benchmark offers exposure to 20 stocks – five fewer than its sister US ETF – that have “or should” have commercial activities in the production or use of hydrogen.
It also integrates ESG objectives into its methodology by excluding companies involved in sectors such as controversial weapons, thermal coal or adult entertainment.
Rebalanced semi-annually, to be included in the index, a company must have a market capitalization greater than $100 million and average daily revenue of at least $2 million over the past six months.
Over the past month, the top three holdings of HYGN, Bloom Energy, Plug Power and Nel Asa – which have a combined weighting of 41.7% in the ETF – rose 40.9%, 49.3% and 4.2% over a short period of favorable conditions for green sectors. .
On August 16, the Inflation Reform Act, which contains $369 billion dedicated to climate action, was signed into law, marking the largest climate-focused investment in the United States to date.
As part of this, a new clean hydrogen production tax credit, the Clean Hydrogen Production Credit, with producers receiving credits worth between $0.60 and $3 per kilogram of hydrogen own product.
Law firm Baker Botts said: “In addition to providing significant tax credits for clean hydrogen production and hydrogen-related energy storage, the law also provides incentives for applications hydrogen in transportation The law paves the way for significant investments in the production and use of clean hydrogen in the United States.
Outside of government policy, HYGN was also supported by lower-than-expected US consumer price inflation (CPI) of 8.5% in July.
It saw leveraged companies in thematic ETFs and other risky ETFs rally in hopes that the Federal Reserve would soften its rate hike cycle sooner than many had expected.
Heading into the end of August, the S&P 500 fell 4% in one week as it neared the Fed summit in Jackson Hole. As some of the dizziness of July and August subsides, it will be interesting to see whether HYGN and other clean energy ETFs will be able to maintain their good form in the rest of the second half or if the continued the ferocity of the Fed provides a harsh dose of reality.
This article first appeared in ETF Insider, ETF Stream’s monthly ETF magazine for professional investors in Europe. To access the full issue, click here.
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