Plenty has been written about clean energy since before Al Gore made his infamous documentary, An Inconvenient Truth, highlighting the effect of excess carbon dioxide on climate change. A global push to reduce carbon emissions now exists and the emergence of a viable electric car industry is making an impact on our carbon footprint.
Most electric cars are simply cars powered by electricity stored in large batteries. Other types of electric cars, termed hybrids, make use of small gasoline engines and electric motors that work in tandem. But these are not the only types of clean energy cars. A technology that does not get much publicity is electric cars powered by hydrogen fuel cells.
Hydrogen fuel cells produce electricity by converting hydrogen gas into electricity through a chemical reaction. The technology is currently in use by some companies including Toyota but, despite its potential, has not gotten much traction.
Investors interested in this technology can participate by investing in exchange-traded funds (ETFs) that focus on this investment theme. Three ETFs currently exist that cover this space: the Defiance Next Gen H2 ETF (HDRO), the GlobalX Hydrogen ETF (HYDR), and the Direxion Hydrogen ETF (HJEN). As seen from the chart below, weak performance relative to the S&P 500 (IVV) has been the norm over the past 2.5 years. Also, these hydrogen-themed ETFs have not attracted much investor interest since the combined assets under management for them continue to be well under $100 million.
There are a few ways to approach this from an investment perspective. First, buy one of the themed ETFs shown above to get some exposure to the sector. Another approach is to buy single-stocks that are thought to be market leaders in the space; a very time-consuming and laborious approach that does not guarantee success.
The biggest problem here, however, is that the macro picture is not very clear. Despite all the efforts to push the clean energy agenda forward and potentially exploit the potential of hydrogen, there is still much to do and no guarantee on a time frame. Just today (March 18), an article on CNBC highlighted comments from the Saudi Aramco CEO saying the “energy transition is failing” and the “world should abandon ‘fantasy’ of phasing out oil”.
Investing in hydrogen could be a viable strategy, but as of today it seems “too early”. A lower risk approach to invest in this space is to wait for the markets to begin to show some strength based on some current growth and some firm growth potential before investing. Otherwise, it would be prudent to stay fully invested in the broad U.S. large-, mid-, and small-capital equity markets and international exposure to have some exposure when/if that market develops.