More Carbon ETFs from KraneShares in a growing trend
KraneShares, a New York ETF provider specialising in China funds, is launching two new actively managed ETFs that target European and Californian carbon prices.
- KraneShares European Carbon Allowance ETF (KEUA)
- KraneShares California Carbon Allowance ETF (KCCA)
Countries with progressive governments have forced companies to pay up if they want to pollute the sky with carbon dioxide. These permissions are sometimes called carbon allowances. Investors wishing to profit from rising carbon prices can buy these allowances, which trade like futures.
KEUA tracks the IHS Markit Carbon EUA Index—using a benchmark despite being actively managed. The use of both benchmark and active management gives KraneShares the discretion. This index is made of the most liquid EUA carbon contracts. Europe’s carbon market is the oldest and the deepest as all of Europe’s member states have committed to
KCCA does something very similar but with Californian and Quebecois emissions. (Quebec in Canada uses the same scheme as California). KCCA tracks the HIS Markit Carbon CCA Index and is also actively managed.
Both funds charge 0.79% a year.
Bernie’s commentary – I like these a lot
I like these types of carbon funds a lot. If the world is going to stave off the worst of global warming – and there’s a chance we may not – then muscular governments driving the carbon price higher is needed. Politically, I think there is a certain wisdom in creating a carbon market in the way that California and Europe have as it creates buy-in for decarbonisation among investors.
And KraneShares would be the first to know how good these funds can be. This isn’t their first carbon ETF, after all. The KraneShares Global Carbon ETF (KRBN) listed in July 2020 on the New York Stock Exchange. Since its inception, the fund has accumulated over $900 million in assets and – cop this – returned a whopping 105.45%...
Investors considering this may want to read up on contango and backwardation. A lot of retail investors especially get into trouble with futures-based ETFs because they don’t fully understand the costs involved in rolling futures.
I’m expecting more ETFs like today’s to list around the world, as i believe that these structures are the culmination of the ESG trend, just these are measurable and definitive.