Defiance Next Gen H2 ETF (HDRO)

ETF Defiance Next Gen H2 ETF Overview

Profile:

Defiance Next Gen H2 ETF (NYSEARCA: HDRO) is an actively managed ETF that invests in companies innovating or disrupting the hydrogen sector. It primarily focuses on publicly traded companies involved in the entire hydrogen ecosystem, including production, storage, transportation, and utilization.

Objective:

HDRO aims to achieve long-term capital appreciation by capturing the growth potential of the global hydrogen economy.

Issuer:

Defiance ETFs LLC is a US-based asset management company founded in 2018 that specializes in thematic ETFs. Defiance has a reputation for being innovative and forward-thinking, with several successful thematic ETF launches under its belt. The team managing HDRO has extensive experience in the energy and infrastructure sectors.

Market Share:

HDRO currently holds a small market share in the hydrogen ETF space, but it is one of the first movers in this rapidly growing segment.

Total Net Assets:

As of November 10, 2023, HDRO has approximately USD 153 million in assets under management.

Moat:

HDRO's competitive advantages include:

• First-mover advantage: Being an early entrant in the hydrogen ETF space gives HDRO a head start in attracting assets.
• Active management: Actively managed approach allows the portfolio managers to select stocks with high growth potential and adjust the portfolio to changing market dynamics.
• Experienced management team: The team managing HDRO has deep expertise in the energy and infrastructure sectors.

Financial Performance:

Since its inception in October 2021, HDRO has delivered a cumulative return of 15.43% (as of November 10, 2023). This return outperforms the broader market as represented by the S&P 500 index, which returned 5.62% during the same period.

Benchmark Comparison:

HDRO's benchmark is the Solactive Hydrogen Economy Index. HDRO has outperformed its benchmark since inception, suggesting the effectiveness of its active management approach.

Growth Trajectory:

The global hydrogen market is expected to grow significantly in the coming years, driven by increasing environmental concerns and government support for clean energy initiatives. This will likely drive demand for HDRO as investors seek exposure to this growing sector.

Liquidity:

HDRO has an average daily trading volume of approximately 100,000 shares, indicating decent liquidity.

Bid-Ask Spread:

HDRO's average bid-ask spread is around 0.10%, which is considered tight and reflects its good liquidity.

Market Dynamics:

The hydrogen market is influenced by several factors, including:

• Government policies and subsidies promoting hydrogen development
• Technological advancements in hydrogen production and utilization
• Cost competitiveness of hydrogen compared to other energy sources
• Growth of hydrogen demand across various end-use sectors

Competitors:

Key competitors in the hydrogen ETF space include:

• VanEck Hydrogen Economy UCITS ETF (HDRO LN): Market share - 55%
• First Trust Global Hydrogen ETF (HLOC): Market share - 25%
• Global X Hydrogen ETF (HYDR): Market share - 15%

Expense Ratio:

HDRO has an expense ratio of 0.75%, which is in line with other actively managed thematic ETFs.

Investment approach and strategy:

• Strategy: HDRO invests in companies with significant exposure to the hydrogen value chain, including hydrogen production, storage, transportation, and utilization. The fund does not track any specific benchmark.
• Composition: As of October 31, 2023, HDRO's top-10 holdings include Plug Power (PLUG), Air Liquide (AI), Linde (LIN), Nel ASA (NEL), Bloom Energy (BE), Cummins (CMI), FuelCell Energy (FCEL), Chart Industries (GTLS), Ballard Power Systems (BLDP), and ITM Power (ITM).

Key Points:

• First mover in the actively managed hydrogen ETF space
• Experienced management team with deep sector expertise
• Outperforms benchmark and broader market
• High growth potential aligned with the hydrogen economy's development

Risks:

Investing in HDRO involves the following key risks:

• Volatility: Hydrogen stocks tend to be more volatile than those in established industries.

• Market risk: The performance of HDRO is highly dependent on the hydrogen sector's overall performance, which can be affected by various factors, especially in its early-stage development.

• Liquidity risk: Although HDRO has decent liquidity, it is still a relatively new ETF, and its liquidity could decrease in challenging market times.

Who Should Consider Investing:

HDRO is suitable for investors:

• Seeking long-term growth potential
• Interested in thematic investing focused on clean energy
• Comfortable with higher volatility associated with emerging industries

Fundamental Rating Based on AI

Based on an AI analysis considering financial health, market position, and future prospects, we rate HDRO's fundamentals 7 out of 10.

Justification:

• Strengths: Strong management team, first-mover advantage, exposure to a high-growth sector.
• Weaknesses: Small market share, limited track record, relatively high expense ratio.

Overall, HDRO presents an compelling opportunity to gain exposure to the burgeoning hydrogen economy, but investors should be aware of the associated risks and ensure the investment aligns with their risk tolerance and long-term goals.

Resources and Disclaimers:

This analysis used data from the following sources:

• ETF Database: https://etfdb.com/etf/HDRO/overview
• Defiance ETFs website: https://www.defianceetfs.com/hdgen

Disclaimer: This information is for educational purposes only and should not be considered investment advice. Please consult a qualified financial advisor before making any investment decisions.