Strong growth in Hydrogen stocks - here's how to invest

Hydrogen as the energy carrier of the future?

The production of energy from hydrogen is still in its infancy in different parts of the world. But the prospect of lower production costs and a better infrastructure can give stocks in this area a big boost. The potential for the economy and society is enormous, as the price increases of recent years have clearly shown.

At the climate conference in Paris in 2015, almost 200 countries agreed on e.g. to limit global warming to two degrees Celsius. It was also agreed that energy-related carbon dioxide (CO2) emissions should be reduced by no less than 60% by 2050. It is therefore obvious that drastic measures are needed if this goal is to be achieved. It is expected that the United States, led by a new president, will soon rejoin the Paris Agreement, which will be a strong signal to the outside world. Achieving the goals of the Paris Agreement becomes even more difficult when one considers that the earth's population is estimated to increase by about two billion people during the period. The world's energy system must therefore undergo fundamental changes and there is a definite need for energy efficiency. Part of the solution is to use more and more renewable energy sources with low carbon content.

Hydrogen is not an energy source in itself, but an energy carrier that can be used to store and transport energy. An energy carrier in one form or another will be necessary if a significant part of our energy supply is to be based on renewable energy. Wind turbines and solar cells today do not produce energy at the same rate as we want to use the energy. Wind turbines also do not produce if it is windless, just as solar cells do not produce energy at night, where electricity is also needed.

Therefore, hydrogen as an energy carrier could be a possible solution to some of the climate problems, and that is very much what you buy into if you believe in this investment case.

Read more about the actual hydrogen investment case here and more about hydrogen as an energy carrier here.

Why invest through a certificate?

Investing in a hydrogen-oriented tracker certificate is an easy way to buy into the hydrogen case without having to invest in selected individual stocks, which may or may not perform over time. You thereby manage to spread your risk away from the individual shares, but of course you still have the overall sector risk. It is also advisable not to place too large a share of one's total investments in such a narrow index as this.

What do you invest in?

When you invest in the certificate, you are exposed to a total of 15 different shares, all of which are in the field of hydrogen technology. The table below shows the current composition and weight of the individual shares that you are exposed to when investing in the certificate.

The table above shows the composition of Vontobel's hydrogen tracker certificate at the beginning of January 2021. Read more about the current composition and price development in the certificate's factsheet, which is continuously updated.

The largest position in the portfolio is clearly American Plug Power, which has had a very sharp price development in the past year of no less than 1500%. The sharp rise in the price has meant that Plug Power currently accounts for almost 19% of the total portfolio.

The Nordic countries are also well represented in the portfolio in the form of Swedish Powercell and Norwegian NEL. Both shares each amount to approx. 7% of the portfolio and is of course also known among many Danish investors. Powercell has increased approx. 100% while NEL has risen as much as 230% in the last year.

Of course, it is not known whether the momentum and the sharp price increases that have taken place in recent years in the hydrogen shares will last, which one must be aware of as an investor in this certificate.

You should also be aware that when investing in the certificate, you are particularly exposed to the USD, as almost 80% of the shares are traded in this currency.

Costs

You pay 1.2% in annual costs in the form of a management fee, which is calculated and paid daily in the same way as when investing in an ETF. These costs must be said to be somewhat higher than one typically pays for index investment, at least in the slightly broader indices. However, it is not uncommon for costs in narrower indices to be higher. In this connection, it is also worth noting that the certificate is not geared, which many certificates are otherwise. This means that the certificate is not subject to deduction of financing costs.

In addition to the annual costs, you will have to pay ordinary brokerage for purchases and sales, just as you will have to accept a certain spread when trading, as the certificate is listed on the stock exchange.

The certificate itself is issued in Danish kroner, which is why you do not need to exchange for foreign currency when buying and selling.

You can read the certificate's key information document (KID) here, where information about the current costs and conditions are available.

Legal structure of the certificate

Tracker certificates at Vontobel, unlike most bull and bear certificates, do not contain leverage. The certificate is “open-ended”, which means that no specific expiration date has been set. In very special cases, however, Vontobel may choose to terminated and redeem the certificate. The certificate is traded on an exchange, which in Vontobel's case is Nordic Growth Market - Nordic MTF Denmark in Danish kroner. In addition to being able to trade the certificate on an ongoing basis during the stock exchange's opening hours, Vontobel will provide market making in the certificate to ensure that you will be able to sell the certificate. Vontobel issues the certificate out of Germany. Its listed holding company based in Switzerland is the guarantor. As an investor, you therefore run a risk on the issuer or guarantor, which in the end can mean that you completely lose your investment if Vontobel goes bankrupt and is unable to meet its obligations in relation to the issued certificates.

If you want to dive deeper into the complete prospectus, you can find all the certificate's legal documents here. The legal structure, including the mentioned risks, is also briefly described in Danish in the above-mentioned key information document.

If you want to read about the tax treatment of certificates please take a look here.

Where can you buy the certificate?

Vontobel's certificates are admitted to trading on NGM (Nordic Growth Market), where it is. traded in Danish kroner. One can trade the hydrogen certificate and other Vontobel certificates at Nordnet. You can find the instrument on Nordnet's trading platform, e.g. by entering the ticker name “TRACK HYDRO VON” or ISIN: “DE000VP9FSU5” in the search box at the top right. You can also find an overview of all Vontobel's tracker certificates at Nordnet via this link. After clicking on the link, under "product type" you can also search for the long list of geared bull and bear certificates that Vontobel also offers, if you are interested in those products.