Ninepoint Carbon Credit ETF Commentary

Fund Overview

The Ninepoint Carbon Credit ETF (“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;

• European Union Allowance (the “EUA”)
• California Carbon Allowance (the “CCA”)
• UK Allowance (the “UKA”)
• Regional Greenhouse Gas Initiative (the “RGGI”)

As the global carbon credit market grows, the Fund may invest in additional carbon allowance futures contracts as well.

Fund Performance

As of February 28, 2023, the Ninepoint Carbon Credit ETF generated a net positive return of +4.76% in February (Series F $USD), with a YTD return of 6.32%.

Market Update

The global financial market declined in February after a strong rally in January. Inflation over the past three months suggested some level of inflation softening, but more evidence is needed to support a pulse in interest rate rises - The Federal Reserve, European Central Bank and Bank of England all raised their rates again in the month of February. Several major indexes went down in February - S&P 500 finished the second month of the year 2.4% lower on a total return basis, Brent Crude briefly went down by 0.7%, while gold was down by 5.3%.

In the carbon market, the EUA Dec-23 contract posted a 7.4% gain while the UKA Dec-23 contract went up by 10.6%. In February, the price of front-December EUAs surpassed the €100/tonne benchmark, a record price for the first time in the European carbon currency’s 18-year history. Supported by both fundamentals as well as speculative activities, the price has remained in a tight range within reach of €100 for the rest of the month. Industrial participants have been holding off purchasing EUAs for compliance due to the ongoing energy crisis and the lower expected industrial output. As we enter 2023, the strong economic outlook, combined with policies to tighten supply and the prospect of strong thermal power generation in 2023, is expected to continue to drive the bullish sentiment in Europe.

In North America, the ICE CCA Carbon Futures Index gained 2.1% this month, while the ICE RGGI Carbon Futures Index went down by 2.2%. The RGGI market remains to be challenged by thin volume on some days and the legal back-and-forth around Pennsylvania’s future participation in the power sector carbon program.

Portfolio Recap

The fund had a positive start to the year, posting a +6.3% return year-to-date with a +4.7% return for Series F $USD in February. The best performer in February was the UKA contract, contributing approximately 2.7% to the total return, and the top distractor was the RGGI contract, contributing approximately -0.5% to the total return.

Why Ninepoint Carbon Credit ETF?

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

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.

Global Exposure – The fund provides investors with access to a 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.

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.

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
swang@ninepoint.com

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