The Easiest Way To Bet On Hydrogen?

As I have said many times before, I have made a living from markets on and off for around forty years. I have often looked back and analyzed what it is that has made that longevity possible, and one of the things that keeps coming up in that context is that I am inherently skeptical of consensus. I guess that makes me what Americans call “ornery” and we British would simply refer to as an argumentative pain in the backside, but it has always made me look for a counterargument when everyone seems to agree on something, and that has served me well over the years.

That is why, even though I have long-term positions based on the growing consensus views that EVs are the future of the automobile industry, and that solar and wind power are the future of energy in terms of electricity generation, I have still been looking for a way to hedge those trades. One way to do that is an ETF that is focused on hydrogen power, the Direxion Hydrogen Fund (HJEN).

Hydrogen power has long been seen as the holy grail of alternative energy, an energy source that uses the most abundant raw material on the planet, water, with no known detrimental environmental impact. The problem is that extracting, storing, and transporting hydrogen is not that easy, and the power plants it requires are bulky, heavy and relatively expensive. There have been some advances in those fields, but other energy sources and EVs have gained the upper hand.

However, should there be just a few more technological breakthroughs, hydrogen power will rapidly gain ground. And if that happens, EVs and even wind and solar will be trends that, in a historical context, come and go quickly. Don’t get me wrong. I am not saying that that is going to happen, just that it is possible, and it is being forgotten as everyone looks for winners in electric vehicles, and more “conventional” alternative energy. There is certainly room for growth there, with EVs representing only 5.8% of car sales and wind and solar combined only around 13% of global electricity generation, but those quite small numbers also make a policy shift towards hydrogen more possible than if those industries were bigger.

Even given the current limitations, the potential of hydrogen to disrupt the disruptors makes a small investment in the field a good idea. However, there is no way of knowing which company will make the required breakthrough, so diversification is key. That is where HJEN comes in. The fund’s holdings are spread across twelve countries, with interests in hydrogen production, storage and supply as well as the better-known fuel cell companies.

This is an idea that has been brewing for a while, but I write about it now because HJEN is currently at a level that represents a good, logical entry point.

It is down by over 30% on the year, but there are signs of a turnaround. The last two rallies and three pullbacks have resulted in progressively higher highs and lows, and the bounce back off the recent double bottom looks pretty solid.

Normally, particularly with something this volatile, I would set and stick to a stop loss, but the hedging nature of this trade negates that. Rather, this is something that you buy and essentially forget, writing off what you have put into it. That necessitates only a small investment, but if there were to be a major breakthrough in the technology around hydrogen, the potential would still be huge.

The main point here, though, is to always question an opinion that seems almost unanimous. If everyone positions themselves a particular way, the downside if things don’t pan out as expected can be big. Having something in your portfolio that can offset losses like that is a sensible precaution, and with emerging energy technologies, covering the less obvious, less fashionable ones like hydrogen power is a way to do that.