Finding an unleveraged ETF or ETN that is up more than 43% since the start of May is difficult. Requiring that it be a commodities play makes the task even harder. Difficult, but not impossible as the iPath Global Carbon ETN (NYSEArca: GRN) shows.
Amid a stunning rally in United Nations carbon prices, GRN has surged 43.3% since May 1, a performance that is likely going unnoticed by many ETF investors. GRN has average daily volume of about 11,100 shares. Based on Thursday’s closing price, that means roughly $60,000 per day changes hands in the ETN. GRN is also small with less than $840,000 in assets under management, according to issuer data.
GRN’s stature aside, carbon prices are soaring. UN-approved Certified Emission Reductions, or CERs, for December have more than doubled to 64 U.S. cents from a record low in April on the ICE Futures Europe exchange, reports Alessandro Vitelli for Bloomberg.
That run has buoyed GRN, which tracks the Barclays Global Carbon Index Total Return. The index is “designed to measure the performance of the most liquid carbon-related credit plans,” according to iPath. [ETF Chart of the Day: Carbon ETN]
Carbon contracts were first offered for trade in March 2008 and the idea was met with much excitement in the institutional world. Underscoring the risks associated with an instrument such as GRN that is levered to a futures market that is not nearly as liquid as those for gold, natural gas or oil, carbon’s bull thesis was dealt a quick blow. GRN has plunged 88.4% in the past five years.
GRN’s recent gains may be short-lived. Certified Emission Reductions, or CERs, being issued by the UN in 2014 may drop 23% from this year, Bloomberg reports.
Additionally, adoption of carbon as a clean energy alternative could be hampered by cheap natural gas prices and an abundance of solar power. Even with its recent pop, GRN is still down 32% year-to-date while the Guggenheim Solar ETF (NYSEArca: TAN) is this year’s top-performing non-leveraged ETF with a gain of almost 69%.
iPath Global Carbon ETN
ETF Trends editorial team contributed to this article.