KRBN: A Unique Return Stream And Investment Thesis

seekingalpha06-26

Sergei Chuyko The deepening process of global decarbonization is creating a huge new market for carbon credits, which are unique and tend to provide an alternative return stream for investors that is ...

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The challenge is that it's a bit of an esoteric market. Thankfully, there are ETFs that one can buy for easy access, like the KraneShares Global Carbon ETF . This is an exchange-traded fund that follows the S&P Global Carbon Credit Index and which tracks carbon allowance futures contracts across Europe and North America. A Look At The Holdings KRBN's portfolio is comprised of a basket of different carbon allowance futures. 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The challenge is that it's a bit of an esoteric market. Thankfully, there are ETFs that one can buy for easy access, like the KraneShares Global Carbon ETF (NYSEARCA:KRBN). This is an exchange-traded fund that follows the S&P Global Carbon Credit Index and which tracks carbon allowance futures contracts across Europe and North America. A Look At The Holdings KRBN's portfolio is comprised of a basket of different carbon allowance futures. The beauty of the fund is that it gets you access to them in a convenient ticker. kraneshares.com But what are these exactly? European Union Allowance (EUA) Futures provide the right to emit a metric ton of carbon dioxide into the European Union Emissions Trading System (EU ETS), which is the world's largest and most liquid carbon market. It covers industries spanning electricity production, manufacturing and aviation. California Carbon Allowance (CCA) Futures are based on the California Cap-and-Trade Program, one of the first functional programs covering different sectors of the market (electricity, industry, construction and transportation). With the strictest and most ambitious reduction targets so far worldwide, this market could deliver a significant portion of KRBN's potential. What about the Regional Greenhouse Gas Initiative (RGGI) Futures? These are tied to the Regional Greenhouse Gas Initiative, a collaborative group of states that spans New England and the Mid-Atlantic and cover carbon emissions from the power sector. You can see from these positions just how specific the fund clearly is in this market, which again is unique and does provide a very different return profile than most other investments out there. Peer Comparison There are no directly comparable ETFs that are listed in the US which are good competitors to KRBN. KraneShares really does, as an issuer, have a lock on this part of the marketplace, as being the only fund to provide exposure to global carbon allowance futures. The only real comparison here to another carbon ETF also comes from KraneShares in the KraneShares California Carbon Allowance ETF (KCCA). I don't think it's fair to make an argument for one over the other, as it's two different geographic regions. For whatever it's worth though, when comparing KRBN to KCCA, we find with the price ratio that KRBN has recently started outperforming, but again I don't know if that really means very much. stockcharts.com Pros and Cons of Investing in the Carbon Transition While an instrument such as KRBN might provide an excellent way to benefit from the carbon transition, there are inevitably also real risks to consider. The upside is that investors can participate in the commoditization of the world's carbon budget. Governments and large corporations are obliged to purchase carbon credits, and the price for these credits is likely to keep rising, potentially making KRBN a highly attractive holding for present-day early-adopter investors. But such investments must be made with an awareness that an asset class that is still in its infancy carries with it significant risks given, among other things, the uncertainties concerning the development of the carbon market in coming years - for instance, regarding regulatory frameworks, new technological developments and geopolitics. Investors should also stay wary of volatility in the carbon market, whose prices can swing because supply and demand dynamics are complex, policy can often change at short notice, and market sentiment can be fragile. Conclusion  I like the fund. It's unique, and the return stream should, in theory, be uncorrelated to stocks and bonds. By giving investors a way to participate in actively traded carbon allowance futures contracts, KRBN serves as an ideal way to invest in carbon futures. And while the carbon market is still nascent and has plenty of risks and unknowns, generally the long-term trend toward decarbonization and growing cap-and-trade programs around the world suggests a rosy outlook for carbon allowances overall.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2446364788"}