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New hydrogen economy ETF launches – too late to back this theme?
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The risk is that investors will gain exposure to companies that now trade at unsustainable valuations.
Alternative energy exchange-traded funds (ETFs) are all the rage right now. Most notably, the iShares Global Clean Energy ETF (LSE: INRG) has seen a surge of inflows, topped the most-bought ETF list on interactive investor and provided investors with roughly 100% returns over the past year.
One of the most interesting new launches in this sector is from Legal & General (L&G) - the L&G Hydrogen Economy UCITS ETF (LSE:HTWO), which is now available on interactive investor. This is a thematic ETF that intends to offer exposure to companies that are enabling the production of cheaper, clean forms of hydrogen, as well as those that are expected to play an integral role in the hydrogen economy.
A market recovery is underway and there is optimism amongst investors that stock markets should do well.
However, Tom Sparke of GDIM, a wealth manager, said oil majors would come under pressure. The oil price has tanked this year as planes have been grounded and manufacturing shut down during the pandemic.
Any short-term rally seems likely could be muted by the rise in electric vehicles and other green initiatives, which will contribute to lower demand than before the pandemic, he said.
What’s more, he added, investors are becoming “ever-more aware of the risk to oil” and with the rise of ethical investing, which typically avoids the oil majors, these stocks could struggle next year.