Why the hydrogen fuel sector deserves a second look

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ESG, or ethical, social, and governance, investing is increasingly important to many investors who want to fund businesses that match their values and also have growth potential. ESG investing can mean different things, such as avoiding businesses that produce or sell weapons; adult entertainment or gambling companies; or those that take part in human rights oppression. For many ESG investors, improving the environment is another important principle. 

Clean energy ETFs offer a way to potentially increase your assets while encouraging the development of clean fuel that minimizes damage to the environment and reduces pollution. Now hydrogen fuel ETFs are joining them. Here’s why a hydrogen ETF may deserve a place in your portfolio. 

Public opinion supports clean energy

All around the world, people are seeing the effects of climate change. In 2020, 22 natural disasters costing over $1 billion occurred in the US alone, compared with 6 per year from 2002 to 2010. Extreme weather events like avalanches, heatwaves, drought, and hurricanes are killing more people every year, pushing public support for zero-carbon initiatives and clean energy. 

Consumers are also experiencing power failures more often, like the recent massive outage in Texas. Back in 2014, scientists were already warning that outdated power grids and rising electricity use would make blackouts more frequent. 

source: https://www.climatecentral.org/outreach/alert-archive/2020/2020PowerOutages.html

The US has more power outages that any other developed country (with an annual average of nearly 5 hours in 2019), while China, Brazil, Europe, India, Turkey, and more have suffered serious power failures over the past 15 years. People see the need for more reliable microgrids that use alternative energy like hydrogen, so essential services can continue even during a power failure. 

Governments and businesses need hydrogen fuel 

87 signatories to the Paris climate agreement committed to keeping global warming under 2℃ by 2030, and many countries, cities, and corporations set zero-carbon targets. Planting trees and reducing energy consumption are praiseworthy, but only the adoption of clean energy like green hydrogen can meet these goals, and that means significantly expanding production. We’re going to need another 826 gigawatts of green power production over the next 10 years, requiring an average of $100 billion dollars of investment each year for the next decade, so the sector appears set to grow significantly. 

Green hydrogen power is ideal for these purposes. It’s very energy-dense and has a long-duration discharge cycle, which enables it to store excess energy and release it later at times and places of peak demand. This helps bring down energy volatility, one of the main causes of power failures. Unlike other green fuels, hydrogen is molecule-based, so it can be applied to industrial use cases that aren’t suitable for green electricity. 

Hydrogen is the most common element on the planet, so there’s plenty of supply. Converting hydrogen into fuel requires electrolyzers to separate and harvest hydrogen molecules, storing the hydrogen in durable, pressurized containers, and then transferring it to fuel cells for release as energy. The only waste product is harmless water, so when energy from renewable sources is used for the electrolysis, hydrogen fuel causes close to zero emissions or pollution. This is why its called “green” hydrogen. 

International investment in hydrogen fuel is high

Governments are leading the way to invest in hydrogen fuel. The Biden administration announced a $400 billion investment in clean energy development over the next 10 years (of which hydrogen is a part), including subsidizing infrastructure construction and initial rollout

costs. Nations across Asia and Europe are investing over $2 billion per year in hydrogen energy, and China announced more than $17 billion of investments in hydrogen transport  between now and 2023. Politicians are also offering incentives for businesses and industries to cut carbon emissions, and tax breaks for the cost of purchasing and installing green energy equipment. 

Top global investors managing close to $7 trillion of assets are expected to more than double their investment in renewable energy infrastructure over the next 10 years, to approximately $742.5 billion. Investment in hydrogen refueling stations and electrolysis plants rose to $272 million and $189 million respectively in 2020, despite the impact of COVID-19 on the economy.

Hydrogen fuel is already a reality

Green hydrogen fuel isn’t just a theory. The US already has 43 retail hydrogen stations and the UK hosts 7 active hydrogen refueling stations, with more under construction in both countries. The cost of hydrogen electrolyzers has dropped by up to 50% since 2015, and it’s expected to fall by another 40-60% by 2030, helping hydrogen fuel to become commercially viable. 

As the cost drops, we see the implementation of hydrogen in a number of use cases, including microgrids for essential services, transportation, residential heating, aerospace, and industrial fuel and feedstock.  Hydrogen-powered forklifts are in use in warehouses owned by Home Depot, Amazon, Walmart, and BMW; almost 7,000 fuel cell elective vehicles (FCEVs) are on the roads in California, and hydrogen fuel-cell bus fleets and trains are rolling out in Europe and China. 

A hydrogen ETF can be a savvy investment decision

If you’re interested in investing in this growing new energy sector, but nervous about the risk of placing all your eggs in a single new company, a hydrogen ETF may offer a great way to proceed. 

Like other ETFs, a hydrogen ETF would give you broad exposure to a number of companies in the field, thereby mitigating some of your single stock risk.  They generally have holdings in a range of companies in the sector, including power producers, fuel cell manufacturers, fuel cell tech developers, and hydrogen fuel distributors. 

Bear in mind that we believe hydrogen investments should be for the long term, helping to balance short-term, high-growth funds and stocks. A hydrogen ETF adds exposure to what we think could be a strong, long-term trend and rising disruptive sector in the energy market. In our opinion, it represents a long term, steady growth sector, which can be a lucrative part of a diversified investment portfolio. 

Click here for the HDRO Fund prospectus.

Distributed by Foreside Fund Services, LLC.

Investing involves risk. Principal loss is possible. As an ETF, HDRO (the “Fund”) may trade at a premium or discount to NAV. Shares of any ETF are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. The Fund is not actively managed and would not sell a security due to current or projected under performance unless that security is removed from the Index or is required upon a reconstitution of the Index. A portfolio concentrated in a single industry or country, may be subject to a higher degree of risk. Specifically, the Index (and as a result, the Fund) is expected to be concentrated in hydrogen and fuel cell companies. Such companies may depend largely on the availability of hydrogen gas, certain third-party key suppliers for components in their products, and a small number of customers for a significant portion of their business. The Fund is considered to be non-diversified, so it may invest more of its assets in the securities of a single issuer or a smaller number of issuers. Investments in foreign securities involve certain risks including risk of loss due to foreign currency fluctuations or to political or economic instability. This risk is magnified in emerging markets. Small and mid-cap companies are subject to greater and more unpredictable price changes than securities of large-cap companies.

The Fund is new with a limited operating history.

Fund holdings and sector allocations are subject to change at any time and should not be considered recommendations to buy or sell any security. Click here for current holdings information.

Opinions expressed are subject to change at any time, are not guaranteed, and should not be considered investment advice.

Sylvia Jablonski, Chief Investment Officer of Defiance ETFs, manages Defiance’s retail and institutional investment research, capital markets and thematic ETF model portfolios. Acknowledged as a top expert in the ETF space, Sylvia is frequently featured on CNBC, Bloomberg and the Wall Street Journal.

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REITs Symposium 2021 is back! The largest REITs Event

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REITs Symposium is into its 7th edition and across 2 days, we will unveil the developments and opportunities in the REITs Industry.

Organised by ShareInvestor and REIT Association of Singapore, supported by Singapore Exchange, the virtual edition of the event on both 15th and 22nd May will encompass a variety of formats for retail investors to reach out to the C-levels of our participating REITs.

The formats include:
– Live Presentation by REITs’ CEO
– Live Interviews with Financial Bloggers
– Live Chat – private chat room to interact with the C-level of each REIT

   

List of Participating REITs:


 
   

Panel Discussions:


 

The programme will also feature 2 panel discussions with our invited guests that aim to give an overview of the current REITs landscape. Both panels will be moderated by Nupur Joshi, CEO of REITAS.

Panel 1: 15 May 2021, 12pm


Panel 2: 22 May 2021, 12pm


Attendees of REITs Symposium 2021 can also take part in our 60 seconds REITs quiz and stand a chance to win 10 x $88 cash.

For more information of the event, please visit: https://www.reitsymposium.com/ Register for free now!

Kenny Loh is a Senior Consultant and REITs Specialist of Singapore’s top Independent Financial Advisor. He helps clients construct diversified portfolios consisting of different asset classes from REITs, Equities, Bonds, ETFs, Unit Trusts, Private Equity, Alternative Investments and Fixed Maturity Funds to achieve an optimal risk adjusted return. Kenny is also a CERTIFIED FINANCIAL PLANNER, SGX Academy REIT Trainer, Certified IBF Trainer of Associate REIT Investment Advisor (ARIA) and also invited speaker of REITs Sympsosium and Invest Fair. 

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5 Singapore REITs trading at their 5 years Price/NAV high

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Despite the Covid-19 pandemic significantly impacting REIT prices, some REITs have rebounded to close to their 5 years Price/NAV high. In this article we will be discussing the 5 S-REITs trading at close to their 5 years high, in terms of Price/NAV, at the time of writing (14 April 2021).

Do note that despite being at their 5 years high (in terms of Price/NAV) this does not mean that the REIT is overvalued. A REIT can be undervalued (<1 Price/NAV) but still be trading at an all-time high. All data is taken from the StocksCafe REIT screener at the time of writing.

5 REITs at their 5 years Price/NAV high

Below are the 5 REITs trading at their 5 years high.

Top 5 S-REITs trading at their 5 years high in terms of Price/NAV. Data as of 14th April 2021. Eagle Hospitality Trust values not meaningful due to its NAV drop from 80.87 US cents in Q2 2020 to 17.06 US cents in Q3 2020.

REIT Price/NAV Graph and Portfolio Overview

Below are the overview of the REITs. Do note that the NAV value changes every quarter/semi-annually, depending on the data provided by the individual REITs in their results release.


ARA Logos Logistics Trust is a REIT comprising of 100% Industrial and Logistics Properties. It has 27 logistics warehouse properties, with 10 in Singapore and the remaining 17 in Australia. It has a total portfolio valuation of S$1,281 million.



Keppel REIT comprises of interests in ten Grade A commercial office assets with 3 located in Singapore (4 after Keppel Bay Tower acquisition), 6 in Australia (Sydney, Melbourne, Brisbane and Perth) and 1 in Seoul, South Korea. It has a total portfolio valuation of S$8,861 million, the largest in this comparison.



Lendlease Global Commercial REIT comprises of a leasehold interest in one retail property in Singapore (313 Somerset) and three freehold office properties located in Milan, Italy. It has a total portfolio valuation of S$1,452 million.



Sabana REIT has a portfolio of 18 industrial buildings located entirely in Singapore. They are divided into 4 categories, namely high-tech industrial, chemical warehouse & logistics, warehouse & logistics, and general industrial. It has a total portfolio valuation of S$840.1 million, the smallest in this comparison.



ParkwayLife REIT is Asia’s largest listed healthcare REIT, with 53 properties. It comprises of 3 Hospitals in Singapore, 1 Medical Office Building in Kuala Lumpur, Malaysia, and the remaining in Japan as Nursing Homes. has a total portfolio valuation of S$2,002 million.


Fundamental Ratios

Funamental Ratio comparison between the 5 REITs. Information taken from the StocksCafe REIT screener, using its comparison feature. Values taken on 14th April 2021.

The above table shows the corresponding fundamental ratios of the 5 REITs. Some observations that can be made are shown below:

  • Yield (ttm): The yield of the 5 REITs are diverse, ranging from 3.33% up to 7.05%.
  • Gearing: The Gearing ratios of the REITs range from 33.5% to 39%. One thing that is worth observing is that these 5 REITs, that are trading at close to their 5 years high, none of them have gearing ratios of above 39%.
  • Price/NAV: Despite trading at close to their 5 years high, Keppel REIT, Lendlease REIT and Sabana REIT are slightly undervalued.
    • Some of you might wonder how is Sabana REIT trading at close to its 5 years high in Price/NAV, despite it dropping in price over the past 5 years. The chart below shows Sabana REIT’s price over 5 years.
    • This is because the Net Asset Value (NAV) of Sabana REIT has been dropping over the past 5 years as well. In layman terms, NAV = (Assets – Liabilities) / Total no. of shares. In Q1 2015, each share’s net asset value is S$1.06, but in Q4 2020, it is only S$0.51.

Lease Management

Lease Management comparison between the 5 REITs. Information taken from the StocksCafe REIT screener. Values taken on 14th April 2021.

The above table shows the corresponding lease management values of the 5 REITs. Some observations that can be made are shown below:

  • No. of Properties: ParkwayLife REIT has the most no. of properties, with 54. Sabana REIT is the only REIT in this comparison with a portfolio wholly in Singapore.
  • Occupancy Rate: Sabana REIT has noticeably a lower occupancy rate than the other 4 REITs, at 76.5%.
  • Weighted Average Lease Expiry (WALE): The 2 Industrial/Logistics REITs have lower WALEs at 2.8 years and 3.1 years respectively. The other 3 REITs in the other sectors have WALEs all above 4.9 years.
  • Property Portfolio Value: Keppel REIT has the largest Portfolio value by a large margin at S$8.86 billion.

Debt Management

Debt Management comparison between the 5 REITs. Information taken from the StocksCafe REIT screener. Values taken on 14th April 2021.

The above table shows the corresponding lease management values of the 5 REITs. Some observations that can be made are shown below:

  • Weighted Average Debt Maturity (WADM): Sabana REIT has the lowest WADM of only 1.2 years, while the other 4 REITs have a WADM of about 3 years.
  • Interest Cost/Cost of Debt: Lendlease REIT and ParkwayLife REIT have a very low Cost of Debt of less than 0.9%. The other 3 REITs have Cost of Debts hovering around 2 to 3%.
  • Interest Coverage Ratio: Lendlease REIT and ParkwayLife REIT have considerably higher ICRs with 8.5 and 18.1 respectively.  The other 3 REITs have an ICR of around 3 to 4.
  • Unsecured Borrowings: All of Sabana REITs borrowings are secured.

Interested in the StocksCafe REIT screener that is used in the above comparison? Try its features now, and make an informed investment decision in Singapore REITs! 

Want to invest in Singapore REITs but don’t know how to start? Or not happy with your current investment portfolio? Contact Kenny here at kennyloh@fapl.sg.

Kenny Loh is a Senior Consultant and REITs Specialist of Singapore’s top Independent Financial Advisor. He helps clients construct diversified portfolios consisting of different asset classes from REITs, Equities, Bonds, ETFs, Unit Trusts, Private Equity, Alternative Investments, Digital Assets and Fixed Maturity Funds to achieve an optimal risk adjusted return. Kenny is also a CERTIFIED FINANCIAL PLANNER, SGX Academy REIT Trainer, Certified IBF Trainer of Associate REIT Investment Advisor (ARIA) and also an invited speaker of REITs Symposium and Invest Fair. Kenny Loh also offers REIT Portfolio Advisory for a fee. Do contact him at kennyloh@fapl.sg 

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