Investing In The Emerging Hydrogen Economy Now

In July 2022, the Biden Administration launched a new initiative to jumpstart the clean hydrogen economy by investing up to $1 billion into building regional clean energy hubs across the United States. That’s just a drop in the bucket of the estimated $320 billion invested in hydrogen projects worldwide. As traders eye green energy plays, this increasing flow of capital into hydrogen has made it a key market to watch. Here’s where traders are looking for in clean hydrogen trades.

Heavy Transportation And Industry Are Poised To Benefit Most From Clean Hydrogen

A good chunk of government spending on hydrogen initiatives around the world is focused on cleaning up those industries producing the bulk of carbon emissions. So, concrete, steel, fertilizer, and other high-emission industries will be the ones traders are watching most closely for demand catalysts. 

But even without the subsidies, tax credits and other government support programs, hydrogen tech is still uniquely suited to these industries. In airplanes, for example, the amount of power needed, especially for long-haul flights, would require electric batteries that are simply too heavy for the aircraft to carry. Hydrogen fuel, on the other hand, would weigh about the same as the jet fuel currently used – while being approximately 2.5 times more energy dense than jet fuel. For similar reasons, hydrogen power is considered one of the most viable clean energy alternatives for cargo ships and other heavy-duty transport where there’s a need for energy-dense yet lightweight fuel. 

Outside of heavy-duty transportation, hydrogen power is likely to see growing demand from the agricultural industry. Currently, fertilizers and chemical feedstock that rely on hydrogen taken from fossil fuels could instead pull it from water, which is a much greener form of hydrogen production. 

Lagging Demand Remains A Challenge For The Market

Currently, clean hydrogen – meaning hydrogen generated using electricity – is still expensive to produce, costing anywhere from $3 to $6 per kilogram. The cost of electrolysis production is expected to fall by half by 2030, but that’s a long time horizon that could see many smaller producers unable to maintain the cash flow needed to fund operations until the technology becomes more cost-effective

That also complicates the demand side of the hydrogen market, as potential end users don’t want to be locked into a long term contract at the current higher rates if the costs are expected to fall so sharply over the next few years. 

For traders, this can make choosing stocks to trade especially challenging as many are pre-profit or only indirectly involved in the hydrogen market. So it is especially important to watch for broader market demand catalysts, like new clean energy regulations, including what specific demand-pull initiatives the Department of Energy ultimately decides to implement. 

Consider Direxion’s Hydrogen ETF To Attempt To Find Yield In Hydrogen Market Trends

Clean hydrogen is still in its infancy and the cost to both develop the technology and then scale it is likely to remain high for the next few years, which makes declaring a clear market leader difficult at this early stage. Rather than trying to bet on individual stocks in this emerging market, you can use an ETF to attempt to diversify your trades across a broader selection of hydrogen stocks. 

The Direxion Hydrogen ETF (HJEN), for example, tracks the Indxx Hydrogen Economy Index*, which is composed of 30 companies helping shape the clean hydrogen industry. With both domestic and foreign securities, it’s designed to track the performance of the global market across production, distribution, storage, and the development of hydrogen-related technology. The current top ten holdings in the index include:

As momentum and motivation to transition into a clean energy future builds, this ETF with global exposure to the hydrogen market can be a useful tool for traders who are looking for an opportunity to seek to translate that momentum into yield. 

Featured photo by Muhammad Nasir on Unsplash.

This post contains sponsored content. This content is for informational purposes only and not intended to be investing advice.

The Indxx Hydrogen Economy Index tracks the performance of companies that provide goods and/or services related to the hydrogen industry, including hydrogen generation and storage, transportation and supply of hydrogen, fuel cells, and hydrogen fueling stations. The Index includes domestic securities as well as securities listed on various foreign markets, including among others, Japan and South Korea. The Index will be reconstituted annually and rebalanced quarterly. One cannot directly invest in an index.

An investor should carefully consider the Fund’s investment objective, risks, charges, and expenses before investing. The Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain the Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at direxion.com. The Fund’s prospectus and summary prospectus should be read carefully before investing.

Direxion Shares ETF Risks – Investing involves risk including possible loss of principal. There is no guarantee the investment strategy will be successful. Hydrogen companies may be significantly impacted by obsolescence of existing technology, short product cycles, falling prices and profits, competition from new market entrants and general economic conditions. In addition, intense competition and legislation resulting in more strict government regulations and enforcement policies and specific expenditures for cleanup efforts can affect the industry. Because this is an emerging industry, companies are generally smaller and the share price of hydrogen companies may be more volatile than companies operating in other, more established industries. Additional risks of the Fund include, but are not limited to, Index Correlation Risk, Index Strategy Risk, Japanese Securities Risk, Currency Exchange Rate Risk, Depositary Receipt Risk, Foreign Securities Risk, Cash Transaction Risk, Tax Risk, and risks associated with the market capitalizations and sectors of the securities in which the Fund may invest. Please see the summary and full prospectuses for a more complete description of these and other risks of the Fund.

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