The future of the energy industry is green, and there are a tonne of opportunities for Canadian investors who want to capitalize on the clean energy revolution.
A survey carried out by HSBC Holdings indicated that most Canadian asset managers find hydrogen as the top clean energy investment.
If you are interested in leveraging the rising demand for clean energy, investing in hydrogen-related businesses could be an ideal way to gain the exposure you are looking for.
This guide to the best hydrogen ETFs in Canada will show you if it’s a good for you.
What Are Hydrogen ETFs?
Hydrogen ETFs are funds that offer you exposure to businesses with significant operations related to hydrogen, plus clean energy linked to the element vital for fuel cell technology.
As the world increasingly shifts towards clean energy, the rising demand for hydrogen could bolster the performance of these assets and offers significant long-term upside for your portfolio.
Countries worldwide are ramping up efforts to cut emissions and that will likely usher in a new era of clean power. Clean hydrogen has the ability to accelerate the carbon reduction efforts for global economies.
The US Department of Energy recently announced that it will spend US$52.5 million on clean hydrogen technology projects.
Top investment firms and analysts believe that hydrogen will become more popular as the primary green energy source.
For Canadians wondering whether investing in the hydrogen market could be worth their money, you should know that the Bank of America and Goldman Sachs believe that the hydrogen market could become worth up to $11.7 trillion by 2050.
Hydrogen Versus Other Clean Energy Investments
Hydrogen is often hailed as the fuel of the future, but how does it stack up against other clean energy investments?
- Versatility: Hydrogen’s edge lies in its versatility. It can be used in a myriad of applications, from powering cars to heating homes and serving as an industrial feedstock. Few clean energy sources boast such a broad range of uses.
- Storage and Portability: Unlike electricity, hydrogen can be stored and transported, making it a potential solution for energy security and grid balancing.
- Emission-Free: When produced from renewable sources, hydrogen offers a genuinely zero-emission energy solution, unlike some other clean energy forms that might have associated emissions.
- High Energy Density: Hydrogen has a higher energy density by weight than batteries, making it especially suitable for applications like aviation and heavy transport.
Risks Involved in Hydrogen ETFs
Every investment comes with inherent risks, and hydrogen ETFs are no exception. Before diving into the hydrogen market, investors should be well aware of these risks:
- Technological Evolution: Hydrogen technology, like all emerging technologies, is rapidly evolving. An ETF focused on today’s leading technologies might find itself outdated if newer, more efficient technologies emerge.
- Regulatory and Policy Changes: Governments across the globe are the driving forces behind the clean energy transition. Any shifts in policy or regulations can significantly impact the hydrogen industry’s trajectory.
- Infrastructure Challenges: The hydrogen industry requires substantial infrastructure development, from production and storage to transportation. Any delays or challenges in this development can hinder growth.
- Market Adoption: While hydrogen has significant potential, its broad adoption in sectors like transportation and industry is still in the early stages. Market reluctance or slower-than-anticipated adoption can affect expected returns.
- Competition from Other Energies: Hydrogen is one of many solutions in the clean energy toolkit. Breakthroughs in other energy forms, such as batteries or biofuels, could shift attention and investment away from hydrogen.
Best Hydrogen ETFs In Canada
Note that there is only one hydrogen-focused ETF available in Canada and very few besides it worldwide. Because of the limited selection, I’ve included mostly international ETFs here, plus a series of hydrogen stocks you can consider as well.
- Horizons Global Hydrogen Index ETF (HYDR.TO)
- Global X Hydrogen ETF (HYDR)
- Direxion Hydrogen ETF (HJEN)
Horizons Global Hydrogen Index ETF (HYDR) is one of Horizons ETFs’ latest offerings for Canadian investors who want to invest in a basket of securities.
The fund seeks to provide you with investment returns of global and publicly-listed companies that are involved in developing and producing fuel cell technology and equipment.
The fund also tracks the performance of companies that are involved in infrastructure, components, and systems to generate hydrogen and the storage and transportation of the material.
The passively managed fund achieves this goal by tracking the performance of the Solactive Global Hydrogen Industry Index before fees and expenses.
HYDR ETF seeks to hedge the US dollar value of its portfolio to the Canadian dollar at all times to mitigate any volatility related to currency exchange rates and boasts a 0.75% expense ratio.
Global X Hydrogen ETF (HYDR) is a US-listed fund that seeks to provide you investment results based on the price and yield performance of companies that are involved in hydrogen production, fuel cell technology, infrastructure, components, hydrogen generation systems, and the storage and transportation of hydrogen.
Listed on the NASDAQ Exchange, Global X Hydrogen ETF is also a passively managed fund, but it boasts an MER of 0.50%. The fund also tracks the performance of the Solactive Global Hydrogen Index, but investing in the fund does not come with currency hedging to the Canadian dollar.
3. Direxion Hydrogen ETF (HJEN)
Direxion Hydrogen ETF (HJEN) is another US-listed fund that can offer you exposure to the hydrogen market.
The fund invests in a basket of 30 publicly-traded companies that are leading the way towards net-zero emissions by offering more accessible, efficient, and sustainable solutions across different hydrogen-related sub-themes, including hydrogen production and generation, storage and supply, fuel cell and battery technology, hydrogen systems and solutions, and membrane and catalysts.
HJEN ETF is a passively managed fund that tracks the performance of the Indxx Hydrogen Economy Index before fees and expenses.
Its asset allocation is internationally diversified, with the US accounting for 25.05% of its asset allocation, the UK with 17.68%, and Italy at 10.16%. It is also the lowest-cost ETF in the category, with an MER of 0.45%.
- Ballard Power Sysems Inc. Stock (BLDP.TO)
- Loop Energy Inc. Stock (LPEN.TO)
- Xebec Adsorption Inc. Stock (XBC.TO)
- Next Hydrogen Solutions Inc. Stock (NXH.V)
- FuelCell Energy Inc. Stock (FCEL)
- Bloom Energy Corp. Stock (BE)
- Air Products & Chemicals Inc. Stock (APD)
4. Ballard Power Sysems Inc. Stock (BLDP)
Ballard Power Systems Inc. stock is one of the best hydrogen stocks in Canada because of its industry-leading position as the largest PEM fuel cell producer worldwide.
The company has shipped over 850 MW worth of fuel cell products since its inception, and it boasts an impressive clientele, which includes the likes of Audi.
The recent uptick in the clean energy industry could make it an excellent value pick for stock market investors bullish on the future of the hydrogen market.
Loop Energy Inc. stock is one of the youngest hydrogen market stocks. The Burnaby-based company was founded in 2000, and it began trading on the TSX in February 2021.
However, it is not a company to be taken lightly. Loop Energy boasts its patented eFlow fuel cell technology that the company claims makes its fuel cells 16% more fuel-efficient than its competitors and offers up to 90% higher peak power than them.
The company is targeting a broader range of applications for its more powerful fuel cells, giving it a competitive edge in the rapidly growing fuel cell industry.
If you are an investor interested in giving a new company with immense potential a chance, this company could be a stock pick to consider.
Xebec Adsorption Inc. stock is a relatively atypical investment to consider if you want to gain exposure to the burgeoning hydrogen market. The company does not have a significant focus on fuel-cell technology. Instead, it offers H2X Solutions and HyGear.
H2X Solutions is a globally renowned, economical, and one of the most compact Pressure Swing Adsorption systems available in the market today. HyGear is a subsidiary that offers on-side hydrogen production solutions for various industrial applications.
The company operates within a niche in the hydrogen market that presents it with a competitive edge. With over 250 hydrogen installations worldwide, it is well-positioned to capitalize on the growing demand for hydrogen by catering to the hydrogen fuel cell industry’s consumption of the material.
Next Hydrogen Solutions Inc. stock is a Mississauga-based hydrogen fuel cell company, but it has a completely inverted approach to the hydrogen market. Most fuel cell technology companies rely on using hydrogen as a fuel to generate electricity.
Next Hydrogen Solutions creates electrolytic cells that can produce hydrogen by using electricity. After over a decade of developing its electrolyzer tech to produce hydrogen, it is a unique player in the hydrogen market.
The company’s products can theoretically allow anyone to generate hydrogen using electricity. The primary raw material an individual might need would be water and an electrical connection.
Using the products provided by Next Hydrogen Solutions, you can produce all the hydrogen you need, and the cost will only be for the electricity you use to generate it.
FuelCell Energy Inc. stock is a global leader in fuel cell technology that has been putting up a stellar performance in recent weeks on the back of rising demand for clean energy alternatives to traditional energy.
The Danbury-based US$2.92 billion market capitalization company designs, manufactures, operates, and services Direct Fuel Cell power plants.
The signing of the Connecticut House Bill 6524 and the US$1 trillion infrastructure bill signed by the US president are positive developments that put ESG stocks like FuelCell Energy Inc. stock in a favorable position for significant long-term gains.
However, the stock is trading for far lower levels than its 2021 highs, making it a possible “buy-on-the-dip” opportunity for investors bullish on its prospects.
Bloom Energy Corp. stock is a San Jose-based US$4.50 billion market capitalization company that manufactures and markets solid oxide fuel cells that produce on-site electricity.
The company was founded in 2001, but it remained under the radar until it went public in 2018 after raising US$1 billion in venture capital funding.
The company’s products convert natural gas, biogas, and hydrogen into electrical energy to provide on-site electrical supply without the need for combustion.
Additionally, its fuel cell technology is different from PEM fuel cells used widely in the industry. The company also creates and offers electrolyzers that use electricity to generate hydrogen.
- Ticker: APD
- Forward Dividend Yield: 2.43%
- Dividend Payout Ratio: 68.92%
- Dividend Yield (12-Month Trailing): 3.14%
- Upcoming Dividend Date: May 13, 2024
- Market Cap: $48.37 Billion
- Forward P/E Ratio: 16.23
- Average Analyst Rating: 2.4 - Buy
Air Products & Chemicals Inc. stock is one of the oldest companies operating in the hydrogen market. The Allentown-based US$63.10 billion market capitalization American company is an international corporation whose primary business is selling gases and chemicals for a broad range of industrial applications.
Hydrogen is one of the several gases and chemicals produced by the company, and it is regarded as one of the largest hydrogen providers worldwide.
Apart from hydrogen production facilities, Air Products & Chemicals boasts an impressive infrastructure of pipelines and other transportation systems, giving it a unique position in the growing hydrogen market worldwide.
|Get $25 Signup Bonus
|Get $50 Free Stock Trades
To learn more, check out my full breakdown of the best trading platforms in Canada here.
Investing in the best hydrogen ETF in Canada could be an ideal approach for risk-averse investors to gain broad exposure to the performance of businesses that rely on the element crucial for green energy.
You can invest in hydrogen stocks to leverage the performance of individual companies involved in the hydrogen market. You have to be willing to stomach the additional capital risk that comes with narrowing your exposure for possibly more significant returns.
The popularity of the clean energy industry has also given a boost to another crucial element used in batteries called lithium. If you want to allocate some of your investment capital to this growing industry, you can check out my list of the best Canadian lithium ETFs to explore the assets you can buy for this purpose.