(New York)

You have probably seen a few articles floating around, but the last several weeks have really hammered it home: we are at the precipice of a new commodities supercycle. The pandemic brought on a huge fall in commodities prices because of a tumble in demand. But as the economy is heating back up, demand is jumping and supply is not matching it. Raw materials demand has surged across the board. Most have been paying attention to oil prices, but check out others like copper and metals. Goldman sees the dawn of a new decade-long demand surge akin to what happened between 2000 and 2010, when the rise of emerging markets/BRICS drove huge raw materials consumption. This time around Goldman says that the green industrial revolution will create a “capex cycle” on part with what happened to emerging markets in the 2000s.

FINSUM: The bank also argues that social and tax policies that are favoring income redistribution to poorer households is bullish for commodities since those households tend to spend a higher percentage of it.

(New York)

All the regulatory focus recently has been on the SEC and DOL, and understandably so. However, FINRA plays a big role in the lives of RIAs and BDs, and it looks poised to make a big move. FINRA is currently examining Reg BI and seeing if they believe it applies to the meme stock trading situation. In particular, FINRA is considering whether new regulations need to be put in place that govern self-directed trading which is not covered by Reg BI. FINRA says it is “committed to supporting the SEC staff’s review (announced in October 2020) of the increase in self-directed trading by retail investors that is not covered by Reg BI, and the effectiveness of existing regulatory requirements in protecting investors in those circumstances”.

FINSUM: This is still in the early stages so it is hard to tell the extent to which it may affect advisors, but it is certainly something to keep an eye on.

(New York)

What is the biggest challenge for retirement in the current era? The answer is time: people are living longer than ever, which means they need long periods of consistent income. Long term consistent income in retirement is a challenge because people need to set enough money aside and be disciplined to not withdraw too much. With all that in mind, annuities play a very special role, as they provide guaranteed income and at the same time, keep a lid on the pace of distributions, which means money will pay out throughout the entirety of retirement. Bonds used to play this role, but given ultra-low rates and high prices, they simply no longer do.

FINSUM: Given the volatility in stocks and the low rates and overvaluation in bonds, annuities have a very strong role to play in almost any portfolio.

(New York)

Hydrogen and other alternative "green" fuels are the subject of a huge amount of interest, not just from environmentalists but also from policy makers, green tech companies, and investors eager to invest in hydrogen. The hydrogen fuel market is poised to take off, with Bank of America comparing it to the smartphone market pre-2007 and the internet just before the dot-com boom.

As of Q4 2019, the hydrogen fuel market was valued at around $150 billion+, but analysts predict a market potential of $11 trillion in indirect investments and $2.5 trillion in direct revenues by 2050, providing significant scope for growth from a hydrogen ETF. By that date, it's expected that hydrogen will supply 24% of all our energy needs. At the moment, fossil fuels still account for 84% of the world's energy usage.

Over 100 countries have pledged to reach net zero carbon emissions by 2050, but their current green energy options aren't enough for them to meet those goals in under 30 years. Wind, solar, and biomass energy all have their uses as part of an environmentally-friendly energy strategy, but experts don't expect that they can produce energy in sufficient quantities to replace fossil fuels. Hydrogen, however, is energy-dense, so it can meet peak demand and offer long-duration discharge cycles that other technologies currently lack.

Hydrogen is abundantly available across the earth, but it's typically found in water as a compound with oxygen. It's released using electrolysis, then stored and transported in pressurized containers before the molecules are passed into a fuel cell to transfer the energy as electricity.

At the moment, the vast majority of electrolysis is powered by fossil fuels, making what's called "gray hydrogen," but when the fuel comes from renewable sources it's "green hydrogen," and the only waste product is water. Tech advances and the falling cost of renewable energy are combining to make "green hydrogen" commercially viable and increase interest in clean energy ETFs. The price of hydrogen electrolyzers has dropped by up to 50% over the last 5 years, and is projected to fall another 40-60% by 2030, while renewable energy capacity needed for green hydrogen production could grow ten-fold by 2050.

At the same time as technology is maturing to make green hydrogen more accessible and cost-effective, demand is rising, pushing up hydrogen companies' stock. The general public is concerned about climate change, pollution, and carbon emissions, and wants a reliable and cost-effective green alternative to fossil fuels. Governments and international organizations are searching for solutions to decarbonization and are rolling out both favorable policies and significant investment in hydrogen fuel infrastructure.

Governments across Asia and the EU are investing more than $2 billion in hydrogen production each year, and the US invested $150 million annually since 2017. China has committed over $17 billion of investment in hydrogen-powered transportation until 2023. Meanwhile, hydrogen-friendly strategies like the European Commission’s European Hydrogen Strategy are offering subsidies for hydrogen-powered Fuel Cell Elective Vehicles (FCEVs) and incentives for R&D, while Germany, France, and Australia are among the countries promoting the use and export of renewable energy. Government policies that raise the cost of energy from fossil fuels make green hydrogen a more cost-effective alternative. Currently, green hydrogen costs around $3-7.5/kg, but it's expected to fall to around $1-2/kg by 2050.

We're seeing real advances in hydrogen infrastructure and nascent adoption of hydrogen fuel across a number of use cases. The UK already has 7 active hydrogen refueling stations, and the US has 43, with 19 more under construction. Hydrogen-powered forklifts are in use in Amazon and Walmart warehouses, hydrogen fuel-cell bus fleets are rolling out in China and Europe, and almost 7,000 FCEVs are on the roads in California. The use of hydrogen fuel for transportation, industrial heating purposes, industrial feedstock, shipping, aerospace, and power generation, are all being explored.

Green hydrogen holds a lot of promise for "hard to abate" high-polluting sectors like cement, steel, and aluminum manufacturing, which need molecule-based fuels and can't switch to electricity. By replacing fossil fuels with green hydrogen, plants could cut up to 30% of global carbon emissions.

A number of companies are seeing success in hydrogen fuel development. Some of the best hydrogen stocks to look out for include Plug Power (PLUG), ITM Power PLC (ITM), NEL ASA (NEL), and Powercell Sweden (PCELL).

Plug Power is working on hydrogen energy production and hydrogen-powered vehicle engines, with an impressive customer list that includes Amazon, NASA, BMW, Boeing, and Home Depot. Home Depot and Amazon use Plug Power's forklifts in some of their fulfilment centers. ITM focuses on integrated hydrogen energy solutions and has already built 7 refueling stations in the UK. ITM intends to bring another 10 online by summer 2021 and construct 100 across the UK within 5 years. NEL ASA is a global hydrogen company developing new car fueling stations, water electrolyzers, and hydrogen generators, and Powercell Sweden, like Ballard Power Systems (BLDP) and Doosan Fuel Cell Company, deliver fuel cell solutions.

Defiance ETF recently launched Defiance Next Gen H2 ETF (HDRO) , the first US hydrogen ETF. HDRO tracks the rules-based BlueStar Global Hydrogen & Next Gen Fuel Cell Index, offering diversified access to hydrogen stocks without risking overexposure to any single company. HDRO holds the above-mentioned hydro stocks, as well as more clean energy and fuel cell stocks. As a clean energy ETF, HDRO combines ethical investing with the opportunity to be part of innovative and disruptive technology that holds the potential to reshape the world's energy consumption over the next few decades.

The Funds’ investment objectives, risks, charges, and expenses must be considered carefully before investing. The prospectus contains this and other important information about the investment company which can be obtained by calling 833.333.9383. Please read it carefully before investing.

n.b. This content was composed and paid-for by Defiance ETFs and is not FINSUM editorial.

•  “Fossil Fuels Still Supply 84 Percent Of World Energy — And Other Eye Openers From BP’s Annual Review,” Robert Rapier, June 20, 2020. https://www.forbes.com/sites/rrapier/2020/06/20/bp-review-new-highs-in-global-energy-consumption-and-carbon-emissions-in-2019/?sh=500e474266a1
• Climate Ambition Alliance: Net Zero 2050, Global Climate Action. https://climateaction.unfccc.int/views/cooperative-initiative-details.html?id=94
• “Thematic Investing: The Special 1 – Hydrogen primer,” Bank of America Securities, Global Research, 23 September 2020, p.5.
• “Thematic Investing: The Special 1 – Hydrogen primer,” Bank of America Securities, Global Research, 23 September 2020, p.54.
• “Emerging opportunities in the hydrogen market,” Rachel Crouch, December 9, 2020. https://www.projectfinance.law/publications/2020/december/emerging-opportunities-in-the-hydrogen-market/
• ^[“Thematic Investing: The Special 1 – Hydrogen primer,” Bank of America Securities, Global Research, 23 September 2020, p.13

Distributed by Foreside Fund Services, LLC.

Investing involves risk. Principal loss is possible. As an ETF, 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. 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.

(Washington)

This is one of the most uncertain times in recent history, and not just because of political divisiveness and the pandemic, but because many of the new administration’s policies are likely to be very different than the Trump administration’s. That extends to taxes, where there is a high degree of anxiety about forthcoming changes, most of which high earners expect to be punitive. Because there is a wide range of possible outcomes, advisors need to work hard to plan for what different scenarios might look like. Accordingly, now is the right time to beef up on tax planning staff, or at the least review your tax planning playbook and keep a close eye on the news.

FINSUM: In a year, when new tax policies are known, you want to be able to tell clients “don’t worry” we have been planning for this and you will be fine. The work to get there needs to start now.