Ninepoint Carbon Credit ETF Commentary

September 2022 Commentary

As of September 30, 2022, the Ninepoint Carbon Credit ETF is valued at a NAVPU of $17.63 (Series F). When the fund was launched on Feb 16, 2022, the NAVPU was $20.00 (Series F).

Investment Strategy

The Fund seeks to achieve its investment objectives by primarily investing directly in carbon allowance futures. The Fund currently invests in the major carbon allowance futures globally, namely, the European Union Allowance (the “EUA”), the California Carbon Allowance (the “CCA”), the UK Allowance (the “UKA”) and the Regional Greenhouse Gas Initiative (the “RGGI”). The Fund may invest in additional carbon allowance futures contracts as the global carbon credit market grows.

Market Update

For the month of September, the Fed reiterated its hawkish stance on monetary policy and delivered another 75-basis points rate hike which was more aggressive than markets were expecting, taking the central bank’s policy rate to a new target range of 3%-3.25%, the highest the rate has been since the global financial crisis in 2008. The ECB also raised interest rate by a surprising 75-basis points. The stock market gave back summer gains and revisited bear-market territory, S&P 500 finished the month 9.2% lower on total return basis, bringing the year-to-date losses to -23.9%. Brent Crude fell 8.8% in September, while gold fell by 2.9%. The compliance carbon markets also came under pressure in September.

In Europe, ICE UKA Carbon Futures Index posted a 22.6% loss while the ICE EUA Carbon Futures Index went down by 16.5% in the month of September. Due to soaring energy costs in Europe, industrial demand shrank amid widespread reductions in production. Since the Russian crisis, several EU member states brought up the idea to release more carbon allowances from the Market Stability Reserve to help finance the EU’s strategy to reduce its reliance on Russian gas. Conversations are going on in the European Parliament, the worry of having more allowances supply in the market next year is injecting significant volatility in the European carbon credit markets.

The EUA sentiment also spilled over the American markets. The ICE CCA Carbon Futures Index lost 1.3% this month. Despite more financial market participation in the CCA, central banks’ rate hike policy and the energy crisis caused by Russia’s invasion of Ukraine have generated bearish macroeconomic conditions for much of 2022. The ICE RGGI Carbon Futures Index also followed the CCA sentiment and dropped 3.4% this month.

Why Ninepoint Carbon Credit ETF?

For an emerging asset class like carbon credit, diversification is at the heart of our fund strategy. Currently, the Ninepoint Carbon Credit ETF invests equally in the four major ETS markets globally with quarterly rebalancing. Having diverse market exposure has demonstrated its benefits to serve investors well. Below are four key reasons for investors to consider Ninepoint Carbon Credit ETF:

1. Diversification: Balanced exposure to all carbon credit markets can help minimize single jurisdiction risk by eliminating over-concentration to any single market, as recent market action has demonstrated. Having a diversified underlying market portfolio is important for an emerging asset class with volatile price patterns, like carbon credits.

2. Global Exposure: The fund provides investors with access to an US$851 billion global carbon credit market which has grown by 18x since 20171. Compared to volume-weighted fund or funds that invest in one single market, we believe that our equal-weighted fund strategy has a better value proposition, over the long-term, given its overweight to the under-represented and rapidly growing carbon credit trading markets.

3. Core Value: As a Canadian fund, by overweighting the North American market relative to its total index weight, we are aligning our strategy with our values and our local community.

4. Easy Access: The fund is structured as an alternative mutual fund offering on Fundserv as well as an ETF series on the NEO Exchange (NEO:CBON / CBON.U)

Product Inquiries:

Sarah Wang
Senior Business Analyst
Ninepoint Partners

1Refinitiv, “Carbon Market Year in Review 2021”. Global carbon markets value surged to record $851 bln last year-Refinitiv (Reuters - January 2022).




1All returns and fund details are a) based on Series F $USD units; b) net of fees; c) annualized if period is greater than one year; d) as at September 30, 2022.
2Sector allocation as at September 30, 2022. Sector allocation based on % of net asset value. Numbers may not add up due to rounding. Cash and cash equivalents include non-portfolio assets and/or liabilities.

The Ninepoint Carbon Credit ETF is generally exposed to the following risks See the prospectus of the Fund for a description of these risks Absence of an active market for ETF Series risk, cap and trade risk, collateral risk, commodity risk, concentration risk, cybersecurity risk, derivatives risk, foreign currency risk, foreign investment risk, Halted trading of ETF Series risk, inflation risk, interest rate risk, liquidity risk, market risk, regulatory risk, securities lending, repurchase and reverse repurchase transactions risk, series risk, substantial securityholder risk, tax risk, trading price of etf series risk.

Ninepoint Partners LP is the investment manager to the Ninepoint Funds (collectively, the “Funds”). Commissions, trailing commissions, management fees, performance fees (if any), and other expenses all may be associated with investing in the Funds. Please read the prospectus carefully before investing. The indicated rate of return for series F shares of the Fund for the period ended September 30, 2022 is based on the historical annual compounded total return including changes in share value and reinvestment of all distributions and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The information contained herein does not constitute an offer or solicitation by anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Prospective investors who are not resident in Canada should contact their financial advisor to determine whether securities of the Fund may be lawfully sold in their jurisdiction.

The opinions, estimates and projections (“information”) contained within this report are solely those of Ninepoint Partners LP and are subject to change without notice. Ninepoint Partners makes every effort to ensure that the information has been derived from sources believed to be reliable and accurate. However, Ninepoint Partners assumes no responsibility for any losses or damages, whether direct or indirect, which arise out of the use of this information. Ninepoint Partners is not under any obligation to update or keep current the information contained herein. The information should not be regarded by recipients as a substitute for the exercise of their own judgment. Please contact your own personal advisor on your particular circumstances. Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any investment funds managed by Ninepoint Partners. Any reference to a particular company is for illustrative purposes only and should not to be considered as investment advice or a recommendation to buy or sell nor should it be considered as an indication of how the portfolio of any investment fund managed by Ninepoint Partners is or will be invested. Ninepoint Partners LP and/or its affiliates may collectively beneficially own/control 1% or more of any class of the equity securities of the issuers mentioned in this report. Ninepoint Partners LP and/or its affiliates may hold short position in any class of the equity securities of the issuers mentioned in this report. During the preceding 12 months, Ninepoint Partners LP and/or its affiliates may have received remuneration other than normal course investment advisory or trade execution services from the issuers mentioned in this report.

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