Ninepoint Carbon Credit ETF Commentary

August 2022 Commentary

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As of August 31, 2022, the Ninepoint Carbon Credit ETF was valued at a NAVPU of $19.74 (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 Performance

For the month of August, the markets faced further selling pressure driven by the Fed’s hawkish remarks on inflation. S&P 500 finished the month 4.1% lower on a total return basis, bringing the year-to-date losses to -16.1%. On Aug 26, 2022, Federal Reserve Chair, Jerome Powell said in his Jackson Hole speech that the central bank won’t end its fight against rapid inflation, signalling investors to weigh the implications of a tough stance against inflation in place for a longer time. In commodity markets, Brent Crude fell 12.3% in August, while gold fell by 3.1%.

Compared to other asset classes, the compliance carbon markets continued to demonstrate their portfolio diversification benefits. In Europe, ICE UKA Carbon Futures Index posted a 23.9% gain supported by a lack of selling interest while the ICE EUA Carbon Futures Index added 1.9% in the month of August. Notably, on Aug 19, 2022, EUA prices reached its all-time high - the Dec-22 contract rallied strongly to a peak of €98. The upward trend was mainly driven by factors including utilities switching to coal generation from natural gas, more demand for cooling in Europe and low trading volume due to the holiday period.

In America, the ICE RGGI Carbon Futures Index strengthened 3.0%, while the ICE CCA Carbon Futures Index dropped 5.9% due to bearish global macro influences as the equities further sold off. While CCA prices seemed to be macro-driven, RGGI price increase was mainly driven by clarity gained from legal development – As discussed in July commentary, a Pennsylvania judge temporarily suspended the state from joining RGGI, the ongoing court challenges is expected to cause some volatility to the regional program. As the situation evolved, later in August, Pennsylvania’s Department of Environmental Protection (DEP) withdrew its 16 million allowances from the upcoming September RGGI auction.

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 a 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 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.

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
swang@ninepoint.com

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 August 31, 2022.
2Sector allocation as at August 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 August 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.

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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Investment Team