RE: AFC Energy now in the Hydrogen ETF!!!!!!!!!24 May 2021 11:39
Good work, Haggis.
The ETF is the best way to get broad exposure, and quickly, and as more investors, both retail and institutional, buy into the "hydrogen story", the size of the fund will grow, forcing the ETF sponsor to purchase further shares in the underlying constituents, thereby creating additional demand for the shares in companies that make up the index, leading to sector price increases, across the board, leading to further investment in the ETF, leading to ........ i.e. a "virtuous" cycle.
However, ..... this can be a double-edged sword!
The index, and hence the ETF, is dominated by 10 stocks, representing c. 50% of the fund value. AFC will represent a very small component. Should two or three of the main contributors to the index suffer share price pressure, thereby dragging down the ETF price, this may lead to stop losses in the EFT being hit, leading to the sponsor selling stock in all the constituents, leading to price pressure across the board. This could lead to stops being hit in the underlying constituents, which results in those prices going lower - and the negative feedback loop is complete. The impact on the (necessarily) less liquid constituents could be quite severe, with heightened volatility.
In other words, a problem in a couple of the (more) dominant players in the hydrogen space, could lead to adverse price movements in a company, such as AFC, that is delivering to target. I guess one way of viewing this is that any (significant) price weakness could be viewed as a great buying opportunity and PIs and IIs become the buyers to the sponsor's sells. But, where the share register is dominated by PIs, with little institutional holding and little analyst coverage, expecting PIs to take up the slack is a big ask, especially where company information is scant.
Net result, expect much more volatility. If the share price is falling, check out what is happening to the share prices of the top ten constituents of the index. If they are steady or up, there may be a problem at AFC. Alternatively, if some are down, the answer may be in forced sales of AFC stock by the ETF sponsor as investors liquidate their ETF holdings. if you can trust AFC is still on track, you might feel more confident to top up.
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