ETFS Hydrogen ETF
ASX Code: HGEN
ETFS Hydrogen ETF (ASX Code: HGEN) offers investors exposure to the world’s leading hydrogen companies, with a focus on pure-plays. Sometimes described as the “Swiss army knife” of decarbonisation, hydrogen contains three times more energy on a weight-for-weight basis than petrol while producing no carbon dioxide emissions. Hydrogen can be used to replace fossil fuels like coal in areas that have proved hard to “green up” in the past.
HGEN aims to provide investors with a return, before fees and expenses, that tracks the performance of the Solactive Global Hydrogen ESG Index. The index holds 30 companies from developed markets, Taiwan and Korea with a focus on pure-play hydrogen businesses. These include hydrogen fuel-cell makers; companies developing hydrogen-based infrastructure like refuelling stations; and companies creating hydrogen or making storage facilities.
HGEN uses a full-replication strategy to track the index, meaning that it holds shares of every company in its index. Pure-play hydrogen companies, which are identified using natural language processing, receive more weight in the fund and have their weights capped at 10%. Non-pure play hydrogen companies receive less weight, and have their weights capped at 4% each.
Why consider HGEN
Invest in the energy transition as the world moves away from fossil fuels.
The world’s leading hydrogen businesses, accessed in a single trade.
Access a potentially high growth clean energy story.
Sometimes called the “Swiss army knife” of decarbonisation, hydrogen is versatile, and can remove carbon dioxide from a lot of industries – like steelmaking, ammonia production, shipping – that are heavily polluting. Hydrogen is not new. But today more than 95% of it comes from fossil fuels like methane and coal. What is new – and potentially exciting – is the growth of green hydrogen, which is created by using clean energy to split water into hydrogen and oxygen. Green hydrogen promises a quiet energy revolution, as it can replace hydrogen generated from fossil fuels. Furthermore, it can then be extended into other areas of the economy where solar power and batteries are unworkable. Turning hydrogen green, and then using it to decarbonise industry, is sometimes called the “hydrogen economy”.
Hydrogen businesses are identified by Solactive, which runs the index, using a two-step process. The process is used both to identify hydrogen companies, but also to distinguish between pure-play and non-pure play companies. The first step is natural language processing (NLP)—which is a form of keyword search. The second step is using FactSet’s sector classification system, called RBICS. In the first step, Solactive uses NLP to trawl through companies public filing documents, websites, social media and other literature to identify hydrogen businesses. In the second step, hydrogen companies identified by the NLP are next examined under the FactSet Revere Business Industry Classification System (RBICS). Those in RBICS sub industries: Fuel Cell Equipment, Technology Providers, Thermal and Chemical Processing Machinery Makers are identified as “pure-plays”. Those outside these sectors are non-pure plays.
HGEN uses a capped and tiered index methodology. The tiering involves splitting companies into pure-play and non-pure play companies. Pure play companies are allowed to take up to 10% of the fund each, while non-pure plays are allowed only 4%. The capping involves, at each semi-annual rebalance, selling companies whose weights have expanded over the 10% and 4% thresholds described above. This weighting methodology is to ensure that pure play businesses have an expanded influence on the performance of the fund. While the capping is used to ensure that no single company becomes too influential.
As much of the hydrogen industry today works alongside the fossil fuel industry, an environmental and social governance screen – which is powered by Minvera Analytics – is used to ensure that fossil fuel businesses are removed from the fund. As part of this, companies that produce fossil fuels of any kind are removed from the index. And as an additional measure, companies involved in controversial weapons, small arms, gambling, tobacco, and those who breach the UN Global Compact are also removed.
- To express long-term strategic or short-term tactical views on decarbonisation and the energy transition.
- To diversify a portfolio away from fossil fuel companies, which are present in some investors portfolios.
- To access an earlier stage and potentially higher growth clean energy investment opportunity.
We design our ETFs with a view of minimising the amount of overlap between each. In this way, investors who buy more than one of our funds avoid buying the same stocks repeatedly. The precise amount of overlap between each fund can differ as the stocks moving in and out of each ETF change at index rebalance/reconstitution. Whatever overlap exists is usually small. For investors wanting to know the exact quantify of overlap between specific ETFs, please feel free to contact us.