Consider a Carbon ETF for Portfolio Diversification | ETF Trends

KraneShares’ carbon ETF has held up as equities have declined, highlighting the benefit of a well-diversified portfolio.

The KraneShares California Carbon Allowance ETF (KCCA) has held relatively steady over the past month, declining just 0.2% in the month trailing October 5 and gaining 0.6% in the past week. Meanwhile, broader U.S. equity markets have fallen sharply, with the S&P 500 declining 5.5% in the past month and 0.8% in the past week on a price return basis.

KCCA offers targeted exposure to the California Carbon Allowances (CCA) cap-and-trade carbon allowance program. This is one of the fastest-growing carbon allowance programs globally.

While comparing KCCA and the S&P 500 is like comparing apples to oranges, it does highlight the power of using carbon ETFs as a portfolio diversifier. KCCA and California Carbon Allowances (CCA) future contracts each have historically low correlations to traditional asset classes.

Changing market dynamics and the start of the fourth quarter may encourage advisors to evaluate portfolio allocations.

“With bond yields spiking again, advisors are likely looking to ensure their portfolios are well diversified,” said Todd Rosenbluth, head of research at VettaFi. “The carbon credit market continues to expand and gain in liquidity, making it a viable area to consider.”

How to Use KraneShares’ California Carbon ETF

KCCA can be paired with other carbon ETFs to customize a portfolio’s global carbon credit market allocation. Other funds in the issuer’s suite of carbon ETFs include the KraneShares Global Carbon Strategy ETF (KRBN) and the KraneShares European Carbon Allowance Strategy ETF (KEUA).

See more: “Top Performing ETFs: Carbon ETFs Lead

KEUA offers exposure to the European Union Allowances (EUA) program. The EUA program is the world’s oldest and most liquid carbon allowance market.

Conversely, KRBN provides broader exposure to carbon allowances. The fund tracks the major global cap-and-trade programs. These include the European Union Allowances (EUA), California Carbon Allowances (CCA), and the Regional Greenhouse Gas Initiative (RGGI).


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