As of October 31, 2022, the Ninepoint Carbon Credit ETF is valued at a NAVPU of $19.16 (Series ETF). At the launch of the fund on Feb 16, 2022, the NAVPU was $20.00 (Series ETF).
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.
For the month of October, the developed market equities (US, Eurozone, Japan) recovered some ground, although emerging market equities remain under pressure. The central banks continue to support hawkish actions in response to the persistent inflationary pressures in most developed countries - ECB announced a further 75 bps rate hike (and the Fed also raised rates by 75 bps in early November), although it is expected that both central governments will soon ease the pace of rate increases. S&P 500 finished the month 8.1% higher on total return basis, bringing the year-to-date return to -17.7%. Brent Crude went up by 7.8% in October, while gold fell by 1.6%.
The compliance carbon markets also notched up strong gains this month. In Europe, ICE EUA Carbon Futures Index posted a 19.5% gain while the ICE UKA Carbon Futures Index went up by 3.0% in the month of October. We remain bullish in the long term but continue to be cautious about the short-term volatility happening in the EU carbon market due to the current fundamental and policy situations. Despite improving sentiment across EU’s energy market this October, the discussions around selling more EUAs to raise €20bn to finance EU’s energy transition are still going on.
In North America, the ICE CCA Carbon Futures Index gained 11.3% this month, while the ICE RGGI Carbon Futures Index went up by 3.2%. Positive macro sentiments dominated the North American market. Notably, the state of California is about to release its final 2022 Scoping plan (a progress assessment towards the statutory 2030 target) in November, it is believed that the Green House Gas (GHG) reduction target model will be updated with a more ambitious 2030 GHG reduction target, in line with market expectations.2
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 the 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 20172. 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)
Senior Business Analyst
2Refinitiv, “Carbon Market Year in Review 2021”. Global carbon markets value surged to record $851 billion 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 October 31, 2022.
2Sector allocation as at October 31, 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 October 31, 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.
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