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Carbon ETN: Solid Returns, Few Investors

October 15, 2008 – Comments (0) | RELATED TICKERS: GRN , USO , UNG

Despite attracting little in the way of investor interest in terms of trading volume and net assets, the iPath Global Carbon ETN (GRN) has outpaced the S&P 500 Index, U.S. Oil Fund (USO), U.S. Natural Gas Fund (UNG), and Central Appalachian Coal Futures (QL) (down 28.5%) over the past three months. Since diverging from oil and natural gas in late July, the global price of carbon is still trading above its low point at that time despite a global unwind of leverage which has hit commodities especially hard.

Investors should also note that since GRN is structured as an ETN, it is a debt obligation of Barclays (BCS) which has lost nearly two-thirds of its value in the past year. This distinction may also be a factor in the hesitance of investors to commit capital to GRN since its launch this summer, as the ETN only has about $6.5M in net assets and a 20-day average trading volume of about 2,300 shares. However, XShares has a similar product in registration called AirShares which is structured as a commodity pool fund and may prove to be more popular with investors.

With the price of natural gas lagging coal; it is cheaper for utilities in Europe to simply switch to burning more gas to generate power which results in less greenhouse gas emissions and less demand for carbon credits. However, as illustrated in this 3-month chart, GRN has broken away from its initial correlation to key energy commodities as tracked by the U.S. Oil and Natural Gas Funds.