HGEN ASX, Hydrogen has had an explosive launch as our only Hydrogen ETF. But with no Australian exposure Should I Buy HGEN ETF?

HGEN ASX, Hydrogen has had an explosive launch as our only Hydrogen ETF. But with no Australian exposure Should I Buy HGEN ETF?

Should I Buy HGEN ETF: Pros and Cons

Pros

  • An easy way to gain exposure to the growing hydrogen sectors
  • 0.69% Fees are reasonable

Cons

  • No Australian Exposure
  • 30 Companies offers low diversification
  • The fund doesn’t necessarily hold only green-hydrogen companies

Who Should Buy HGEN ETF?

ETF Securities Hydrogen ETF is made to largely target investors looking to invest within the growing hydrogen sector, but are unsure of which individual companies to select., or those looking to gain international diversification.

The fund is largely based around green-hydrogen through ethical filters, although traditional hydrogen companies aren’t necessarily discriminated from the fund.

Should I Buy HGEN ETF Facts

Should I Buy HGEN ETF, HGEN ETF, HGEN ASX
Ticker CodeHGEN
BenchmarkSolactive Global Hydrogen ESG Index
Number of Holdings30
Assets Under Management$50M
Management Fee0.69%
Portfolio TurnoverUnknown
Inception Date4th Oct 2021
Income DistributionsAnnually
Distribution Reinvestment PlanYes
Total 5-Year Returns15.10% p.a (Index Return)

HGEN ASX ETF Price

HGEN has had a successful launch since early October with a 13% jump in the first few weeks. The fund initially floated at a price of $10. The past performance of the index seems promising with decent returns. However, the ETF has been created out of the excitement surrounding green hydrogen companies, because of this we expect returns to be great. We will have to wait for actual historic returns.

HGEN ASX AUM Growth

HGEN has been a success for ETF securities as its AUM has quickly grown as the fund has grown its investor base.

About HGEN ETF ASX

ETF Securities Hydrogen ETF (HGEN), is the first and only ETF that targets the rapidly growing hydrogen sector. This sector ETF was created due to the rising popularity of hydrogen as an energy alternative.

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Hydrogen is widely tipped to power large-scale transport (trucks, trains, planes, and ships) into an emissions-free future. Hydrogen is tipped to be a large part of Australia's strategy towards net-zero emissions by 2050, as we follow in the world's footsteps.

The hydrogen scene is extremely bullish at the moment. With many stocks in the space reaching all-time highs over 2021. For more information on the Hydrogen BOOM, check out our Green Hydrogen ASX analysis.

Should I Buy HGEN ETF, HGEN ETF, HGEN ASX

The ETF holds 30 companies fully replicating the Solactive Global Hydrogen ESG Index. The fund has no Australian allocation.

HGEN Share registry: Computershare. Through Computershare, you can manage your holdings and communications, and also select whether or not to reinvest distributions.

HGEN is domiciled in Australia meaning it is a registered fund in Australia for tax purposes. Investors who buy into this ETF, and are Australian residents for tax purposes, will be subject to Australian taxes and regulation.

HGEN ASX Portfolio Goal

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 refueling stations; and companies creating hydrogen or making storage facilities.

"The ETFS Hydrogen ETF invests in the hydrogen economy, by owning a concentrated portfolio of hydrogen companies with a focus on pure-plays"

ETF Securities

HGEN ETF Benchmark Index

ETF Securities HGEN ETF is benchmarked against the Solactive Global Hydrogen ESG
Index.

Hydrogen businesses are identified by Solactive, and ranked in terms of market cap from 1-30, for inclusion within the index.

Companies will be classified as “PURE PLAY” and “NON-PURE PLAY”. The maximum weight of a company that is classified as PURE PLAY is 10%. The maximum weight of a company that is classified as NON-PURE PLAY is 4%.

Companies within the 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.

  • Index Inception: 31st August 2021
  • Tracking from: 31/07/2020
  • Holdings: 30
  • Goal: Representation of companies that have business operations in the field of hydrogen.
  • Rebalancing: Semi-Annual
Should I Buy HGEN ETF, HGEN ETF, HGEN ASX

Hydrogen Index Requirements

To be considered for the index the company must be listed and headquartered within a developed country, with a market cap of at least USD $100k. The company must also operate within the following sectors;

  • Production of hydrogen fuel-cells, and supply of fuel-cell components and fuel-cell equipment
  • Manufacturing and developing of hydrogen fueling stations and hydrogen-based infrastructure
  • Involved in the storage, generation, and distribution of hydrogen that can be used as energy source

The company then applies an Ethical filter to remove 'unethical' companies including those that generate revenues based on weapons, tobacco, gambling, and fossil fuels. Most notably the index excludes companies that generate more than 5% of revenues from conventional oil and gas production, including natural gas, petroleum,
and crude oil.

Should I Buy HGEN ETF: Holdings

HGEN has a total of 30 holdings, all of which are equities. This seems like a small number of holdings for an ETF and is unclear how well this represents the global hydrogen space. We can see a large allocation to US and UK businesses which together represent an aggregated 54.3% of the fund.

We do see a clear lack of Australian businesses despite Australia recently entering into the green hydrogen space. Recently Fortescue Metals has been eyeing off the sector with Twiggy Forrest announcing back in 2020 that they would aggressively support a zero-emissions energy approach through a new green energy arm, Fortescue Future Industries.

HGEN ETF Fees

  • Management Fee: 0.69% p.a
  • Indirect Costs: 0%
  • Bid/Ask Spread: Unknown

How are HGEN ETF Management fees paid?

Management fees are automatically deducted from the fund’s Net Asset Value on a daily basis. This means is you as an investor never have to directly send money to ETF Securities. It is all processed by the fund as they deduct the fees from the underlying earnings/capital of the fund. Because of this you never really notice the fees, instead, it just reduces the fund’s performance over time. When the fund sends out their AMMA statement at tax time you can see the full details of this.

HGEN ASX Bid-Ask Spreads

The bid-ask spread is the difference in price between the highest price that a buyer is willing to pay for a security and the lowest price for which a seller is willing to sell it.

  • The narrower the spread the better, as this reduces the trading costs associated with buying and selling ETFs
  • Exchange-based spreads, as on the ASX, are set by the competitive tensions between market markers
  • Larger Funds will tend to have lower bid-ask spreads.
  • Bid-Ask spreads are not set but constantly change throughout the day, depending on supply and demand.

Since HGEN is a new fund, the average bid-ask spread of the fund is unclear. When purchasing units in the fund you can refer to the live iNAV of the fund to ensure spreads are reasonable.

Should I Buy HGEN ETF Fee Comparison

Ticker CodeHGENIVVVTSVDHGVASVGAD
AUM$50M$4.8B$2.9B$1.1B$8.5B$1.8B
Mgmt Fees0.69%0.04%0.03%0.27%0.10%0.21%
Indirect Fees-
Average Bid/Ask SpreadUnknown0.02%0.02%0.04
Total Fees0.69%0.04%0.03%0.29%0.12%0.25%

HGEN's Management fee of 0.69% would represent $69 per year on an investment of $10,000. In comparison, the equivalent fees for IVV would be $4. HGEN being a niche thematic ETF, we would expect slightly higher fees, and 0.69% seems reasonable.

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Should I Buy HGEN ETF, HGEN ETF, HGEN ASX
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Should I Buy HGEN ETF: Performance

In the below table we set out the returns of HGEN compared to the Solactive Global Hydrogen ESG Index over various time frames.

We have also compared the performance of HGEN to several other popular ETFs. They are expressed as average returns per annum.

1 year3 years5 years10 yearsInception
HGEN----12.33%
Benchmark27.80%13.20%15.10%-6.09%
VTS35.56%18.57%18.18%19.88%16.61%
IVV32.71%18.20%17.87%19.90%6.06%
VAS28.78%10.08%10.16%8.64%9.59%
VGAD35.72%13.55%14.48%14.47%
VGS20.49%13.73%12.88%13.03%

As we can see above, The benchmark has had decent returns averaged over the past three years. Although these appear to be largely in line with many of our other popular ETF options. HGEN's recent performance may also be biased since the fund has been created due to the sector's excellent performance and investor interest.

In the below graph we see the price returns of the HGEN benchmark index in comparison to the MSCI World index over the past year. We can see the massive returns towards the end of 2020 and the beginning of 2021, followed by a steep correction.

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Should I Buy HGEN ETF, HGEN ETF, HGEN ASX

HGEN ETF Competitors

HGEN has no direct competitors and is the only Hydrogen thematic ETF listed on the ASX. Other popular funds include VAS, IVV, and VDHG.

Should I Buy HGEN ETF: Prophet's Take

The Hydrogen ETF, HGEN is the first and only ASX listed hydrogen thematic ETF. This fund has been created to help investors gain exposure to the hydrogen space. This sector has sparked investor interest recently following Australia's and the worlds targetting of net-zero emissions. Hydrogen has largely been regarded as an option to facilitate this change.

The earth cannot simply go on in its current form using non-renewable forms of energy. We will see a massive shift over the next decade to green energy sources and we strongly believe that hydrogen will form a large part of a green energy future. Prophet is bullish on clean energy going into the future.

However, with this being said we won't be investing in HGEN. At this stage, we see no Australian representation in the fund, despite many Australian companies making big plays into the space. Australia's current energy and material infrastructure also positions the country well to be a global supplier of hydrogen.

The HGEN fund seems like a good starting point for investing looking to enter into the sector but are unsure of which companies to invest in. However, with only 30 holdings the fund seems to be missing a large number of key hydrogen opportunities.

Read our Analysis of Green Hydrogen ASX here.

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HGEN ETF Factsheet

Should I Buy HGEN ETF, HGEN ETF, HGEN ASX
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