Despite the recent drop in oil prices and pullback in alternative-energy investing, XShares Advisors has introduced the AirShares EU Carbon Allowance Fund (ASO), which competes with the iShares Global Carbon ETN (GRN).
Both ASO and GRN track the price of carbon-emission credits. As carbon emissions are limited, “dirty” companies need to buy additional credits if their emissions exceed their allowance. “Clean” companies on the other hand, can sell unused carbon emission credits for cash. Carbon-emission credits have more momentum in Europe and are just beginning to gain traction in the U.S.
ASO is a commodity pool that seeks to provide investors with exposure to the performance of a basket of exchange-traded futures contracts for European Union Allowances (EUAs). An EUA is an entitlement to emit one metric ton of carbon dioxide equivalent that is transferable under the European Union Greenhouse Gas Emissions Trading Scheme.
ASO’s portfolio holds unleveraged long positions in European Climate Exchange Carbon Financial Instrument Futures Contracts. The EUA futures contracts that ASO invests in expire in December of years 2009-2012. As contracts approach their December expiration, the fund sells expiring contracts and replaces them with contracts of later expirations.
According to the prospectus, ASO’s annual expense ratio is 0.85 percent.
GRN has lost around 40 percent since its inception in 2008 but has fared better than other alternative energy ETFs such as the PowerShares WilderHill Clean Energy ETF (PBW) and the Market Vectors Global Alternative Energy ETF (GEX). Nevertheless, an investment in clean energy companies, as represented by the above ETFs, provides are more direct link to this immature yet noble sector.
Ron DeLegge is the San Diego-based editor of www.etfguide.com