Benefits and risks of investing in hydrogen ETFs
Investing in hydrogen ETFs has its pros and cons. Here are some of the benefits:
- They enable you to invest broadly in the hydrogen sector or broader clean energy space.
- They enable you to capitalize on hydrogen's enormous growth potential.
- Investing in a hydrogen ETF can help align your portfolio with your environmental goals.
Here are some hydrogen ETF risk factors to consider:
- A hydrogen ETF can underperform the top hydrogen stocks.
- The hydrogen sector has faced major headwinds in recent years, leading several companies to delay or cancel projects and impacting returns.
- Several hydrogen ETFs have liquidated and closed in recent years due to waning investor interest in the sector.
- The fund's expense ratio can eat into its returns over the long term.
Methodology: How these ETFs were chosen
There's currently only one pure-play hydrogen ETF after a couple of other hydrogen-focused funds liquidated and closed. As a result, I had to cast a wider net. I looked for other ETFs focused on the broader clean energy trend. I chose the largest ones with meaningful exposure to hydrogen stocks and reasonable expense ratios.
Should you invest in hydrogen ETFs?
There are many reasons to consider buying a hydrogen ETF, including:
- Gaining broad exposure to the top stocks in this potentially massive industry.
- Passive investment in a fund instead of actively managing a portfolio of hydrogen stocks.
- Preventing the potential pitfalls of being right on the investment thesis (hydrogen demand will grow exponentially), but selecting the wrong investment vehicle to express that view (e.g., a stock underperforming due to mismanagement or financial issues).
- Aligning your portfolio with your environmental values.
ETFs make it easy to invest thematically in hydrogen stocks or the broader alternative energy sector. However, they're riskier investments, given the current option. As a result, investors might want to create their own mini hydrogen ETF by purchasing a basket of top hydrogen stocks.
