Ninepoint Carbon Credit ETF Commentary

January 2023 Commentary

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As of Jan 31, 2023, the Ninepoint Carbon Credit ETF is valued at a NAVPU of $18.49 (Series ETF). When the fund was launched on Feb 16, 2022, the NAVPU was $20.00 (Series ETF).

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, including:

  • 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.

Market Update and 2023 Outlook

The global financial market experienced strong gains entering into 2023. S&P 500 finished the first month 6.3% higher on total return basis, Brent Crude briefly went down by 1.7%, while gold went up by 5.7%.

In the carbon market, ICE EUA Carbon Futures Index posted a 10.8% gain while the ICE UKA Carbon Futures Index went up by 4.5%. In North America, the ICE CCA Carbon Futures Index lost 3.3% this month, while the ICE RGGI Carbon Futures Index also went down by 5.6%.

Throughout 2022, with energy security at risk in various parts of the world, low industrial demand led by cost inflation remains a key risk factor for the demand of carbon allowances. Russia’s invasion of Ukraine in late Feb sparked a surge in gas prices, driving up demand for more price-competitive alternatives including coal, which in turn pushed up coal prices. It is expected that industrial production level will remain solid and emissions from the utilities sector will last for longer than expected, increasing the need for carbon allowances.

On the policy side, in 2022, the EU agreed to raise €20 billion from carbon allowances to finance the energy transition over the next three years, this clouded the market and dis-encouraged some traders from taking long positions. That said, amid the war in Ukraine and energy crisis, several major countries are calling for tightened carbon policies and more innovative strategies. Among them, EU reached a final agreement to further tighten its carbon market in December, the California and RGGI programs are also undergoing reviews.

2023 will be a defining moment for carbon for all the reasons we mentioned above, and we are watching very closely.

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 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 2017 . 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 a 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 February 23, 2023.
2Sector allocation as at February 23, 2023. 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 February 23, 2023 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.

Ninepoint Partners LP: Toll Free: 1.866.299.9906. DEALER SERVICES: CIBC Mellon GSSC Record Keeping Services: Toll Free: 1.877.358.0540

Investment Team