Investors looking for opportunity in the second half would do well to keep an eye toward European carbon allowances. Trend-following signals, ongoing geopolitical turmoil, and recent trading action make the KraneShares European Carbon Allowance Strategy ETF (KEUA ) a fund to watch as it heads into the fall.
European carbon allowances recently signaled the potential for greater gains this month, with the EUA 100-day SMA crossing above the 200-day SMA last week.
“EUAs (European Carbon) is quietly making a strong comeback,” Luke Oliver, Managing Director, Head of Climate Investments and Head of Strategy at KraneShares, wrote on LinkedIn. “With the 100-day moving average crossing the 200-day moving average, it sends strong signals for greater upside potential.”
Meanwhile, investments funds have lowered their net short positions of EUAs. These shorts fell from 25 million tonnes to slightly below 15 million this month, according to the Climate Market Now blog.
Geopolitical risk also continues to drive the price of natural gas this summer. This winter, ongoing fighting and tension in Ukraine and the Middle East creates concerns for Europe’s natural gas supply.
“Despite EU gas storages nearing 90% capacity well before the November deadline and declining EU gas consumption, gas prices have risen to year-to-date highs,” KraneShares explained in their blog. This, in turn, creates upward pricing pressure on EUAs.
Investing in European Carbon Allowances With KEUA
Th KraneShares European Carbon Allowance Strategy ETF (KEUA ) offers targeted exposure to the EU carbon allowances market and is actively managed. The fund’s benchmark is the S&P Carbon Credit EUA Index.
KEUA crossed above both its 50-day Simple Moving Average (SMA) and its 200-day SMA at the end of July. The fund remained above both for all of August as of 08/21/24. When a security trades above its moving averages, it’s considered within buy territory for trend followers.
The fund’s benchmark tracks the most-traded EUA futures contracts, the oldest and most liquid carbon allowances market. Currently, the market covers roughly 40% of all EU emissions, including 27 member states and Norway, Iceland, and Liechtenstein.
KEUA carries a management fee of 0.79%.
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