Carbon Allowances ETF Throws In The Towel

by on July 29, 2009 | ETFs Mentioned:

XShares has announced that it will liquidate its AirShares EU Carbon Allowances Fund (ASO) effective to July 31, 2009, and subsequently dissolve the fund. XShares cited the fund’s small size, inability to attract significant market interest since its inception, and the prospects for growth in the fund’s assets in the foreseeable future in its decision to shutter the fund.

Volkswagen Factory in Wolfsburg, GermanyASO, which was launched in December 2008, is a commodity pool that seeks to provide investors with results corresponding to the performance of a basket of futures contracts for European Union Allowances (EUAs). An EUA is an entitlement to emit one metric tonne of carbon dioxide under the EU Greenhouse Gas Emissions Trading Scheme, a cap-and-trade program that provides incentives for countries that signed the Kyoto Protocol to reduce carbon emissions. Cap-and-trade programs have been in the news in the U.S. lately, as the Obama administration has been pushing for the implementation of a cap on carbon emissions, forcing businesses that exceed the cap to purchase the right to exceed the threshold on the open market (a plan that has been extremely controversial).

Investors are still able to gain quick and relatively cheap access to the price of carbon-related emissions permits. iPath’s Global Carbon ETN (GRN) is designed to track the performance of carbon-related credit plans. GRN has also encountered difficulties in attracting investor dollars, recently with a market cap of less than $3 million.

Following the closure of ASO, XShares will be left with a line of target retirement date ETFs:

  • TDX Independence In-Target ETF (TDX)
  • TDX Independence 2010 ETF (TDD)
  • TDX Independence 2020 ETF (TDH)
  • TDX Independence 2030 ETF (TDN)
  • TDX Independence 2040 ETF (TDV)

These funds serve as a sort of “one stop shop” for investors. As the target retirement date nears, each fund changes its composition to become more conservative in nature (i.e., TDD would have a much higher allocation to fixed income investments than would TDV). XShares has had more success in this arena, as these five ETFs have a combined market capitalization of nearly $150 million. XShares has gone head-to-head with iShares in this space, and has actually dominated the ETF giant in the niche.

If you’re interesting in learning more about investments in the carbon emissions market, iPath has some interesting reading.

Disclosure: No positions at time of reading.