Research > ETFs > ETF / ETP Commentary > 

KraneShares Head of Strategy Says Carbon Prices Bullish

Recent selloffs of carbon allowance funds based in the European markets have caused dips in those funds, but KraneShares believes that it’s only a short-term reaction in a long-term upward trend.Luke Oliver, managing director and head of strategy for KraneShares, told ETF Trends that because of pullback in the European markets, the KraneShares Global Carbon ETF (KRBN) as well as the newly launched KraneShares European Carbon Allowance ETF (KEUA) are both experiencing selloffs. KRBN carries heavy allocation in the European Union Allowances, and KEUA is targeted solely within the market.Oliver attributed the selloff to political risk, saying, “Greece expressed concerns about the rising price of carbon which led some investors to reduce risk, alongside a broader de-risking in Europe.”The fall of natural gas prices also contributed to the EUA selloff, but Oliver warned that Greece’s belief that rising carbon prices were linked to the rise of energy prices was misplaced. The driving factor behind the energy price crisis that much of Europe is experiencing is one that Oliver believes can be attributed instead to low gas supply overall, abnormally low reserves for winter, the pressure of the demand from China and India, and coal shortages.Natural gas movement is not directly reflective of carbon prices either, as natural gas prices have risen exponentially; prices for natural gas are up roughly 400% year-to-date compared to the much more modest 78% rise seen in carbon allowance prices.Oliver believes that, long-term, the E.U. will not shift its stance on carbon because of Greece’s recent accusations; indeed, the cap reduction was recently bumped to 4.2% from the former 2.2% cap in order to more aggressively combat emissions and meet Paris Agreement goals.“The falling cap, shift from surplus to deficit allowances and continued use of fossil fuels maintain the bull story for carbon prices,” Oliver claimed, going on to warn that “carbon prices have historically been more volatile than equities and should be considered when investing.”Investing in the EUA With KraneSharesThe KraneShares Global Carbon ETF (KRBN) offers a first-of-its-kind take on carbon credits trading.KRBN tracks the IHS Markit Global Carbon Index, which follows the most liquid carbon credit futures contracts in the world. This includes contracts from the European Union Allowances (EUA), California Carbon Allowances (CCA), and Regional Greenhouse Gas Initiative (RGGI) markets. North American pricing data is supplied by IHS Markit’s OPIS service, while European prices are supplied by ICE Futures Pricing.Of note, 71% of KRBN’s current exposure is in EUA.KRBN invests in its futures contracts via a Cayman Islands subsidiary, meaning that it can avoid distributing the dreaded K-1 tax form to its shareholders.KRBN carries an expense ratio of 0.78% and has over $959 million in net assets.The KraneShares European Carbon Allowance ETF (KEUA) offers targeted exposure into the E.U. carbon allowances market only, capturing the increasing prices in the highest-priced carbon allowance market globally.KEUA offers exposure to the European Union Allowances cap-and-trade carbon allowance program only and is actively managed.The fund’s benchmark is the IHS Markit Carbon EUA Index, an index that tracks the most-traded EUA futures contracts, a market that is the oldest and most liquid for carbon allowances. The market currently offers coverage for roughly 40% of all emissions from the E.U., including 27 member states as well as Norway, Iceland, and Liechtenstein. The annual cap reduction was recently increased from 2.2% to 4.2% to meet long-term carbon emission targets.As the fund is actively managed, it may invest in carbon credit futures with different maturity dates or weight futures differently from the index. The fund potentially trades in CTFC-regulated futures and swaps above the CFTC 4.5 limit and is therefore considered a “commodity pool.”KEUA has an expense ratio of 0.79%.For more news, information, and strategy, visit the China Insights Channel.

Performance data shown is past performance and is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. Yield and return will vary, therefore you have a gain or loss when you sell your shares. For standard quarterly performance, go to the fund's Snapshot page by clicking on the ETF/ETP's symbol.

ETFs may trade at a premium or discount to their NAV and are subject to the market fluctuations of their underlying investments.

For iShares ETFs, Fidelity receives compensation from the ETF sponsor and/or its affiliates in connection with an exclusive long-term marketing program that includes promotion of iShares ETFs and inclusion of iShares funds in certain FBS platforms and investment programs. Please note, this security will not be marginable for 30 days from the settlement date, at which time it will automatically become eligible for margin collateral. Additional information about the sources, amounts, and terms of compensation can be found in the ETF's prospectus and related documents. Fidelity may add or waive commissions on ETFs without prior notice. BlackRock and iShares are registered trademarks of BlackRock, Inc. and its affiliates.

FBS receives compensation from the fund's advisor or its affiliates in connection with a marketing program that includes the promotion of this security and other ETFs to customers ("Marketing Program"). The Marketing Program creates incentives for FBS to encourage the purchase of certain ETFs. Additional information about the sources, amounts, and terms of compensation is in the ETF's prospectus and related documents. Please note that this security will not be marginable for 30 days from the settlement date, at which time it will automatically become eligible for margin collateral.

News, commentary (including "Related Symbols") and events are from third-party sources unaffiliated with Fidelity. Fidelity does not endorse or adopt their content. Fidelity makes no guarantees that information supplied is accurate, complete, or timely, and does not provide any warranties regarding results obtained from their use.

Any data, charts and other information provided on this page are intended to help self-directed investors evaluate exchange traded products (ETPs), including, but limited to exchange traded funds (ETFs) and exchange traded notes (ETNs). Criteria and inputs entered, including the choice to make ETP comparisons, are at the sole discretion of the user and are solely for the convenience of the user. Analyst opinions, ratings and reports are provided by third-parties unaffiliated with Fidelity. All information supplied or obtained from this page is for informational purposes only and should not be considered investment advice or guidance, an offer of or a solicitation of an offer to buy or sell a particular security, or a recommendation or endorsement by Fidelity of any security or investment strategy. Fidelity does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating ETPs. Fidelity makes no guarantees that information supplied is accurate, complete, or timely, and does not provide any warranties regarding results obtained from their use. Determine which securities are right for you based on your investment objectives, risk tolerance, financial situation and other individual factors and re-evaluate them on a periodic basis.

Before investing in any exchange traded product, you should consider its investment objective, risks, charges and expenses. Contact Fidelity for a prospectus, offering circular or, if available, a summary prospectus containing this information. Read it carefully.