Market volatility surged on Monday, as megacap technology stocks plummeted on AI concerns. Advisors and investors looking to diversify their commodity portfolio or those seeking non-correlated return potential in a volatile environment would do well to consider European carbon allowances. The +KraneShares European Carbon Allowance Strategy ETF+ (KEUA ) is up 12.65% this year through January 24, 2025 according to Y-charts data.
This year kicked off strong for European carbon allowances. Last week marked the third consecutive week of gains for the EU commodity. What’s more, December 2025 European Union Allowances (EUAs) futures contracts hit a year high last week, reported KraneShares in the Climate Market Now blog. These contracts reached €81.76 in trading Thursday, “capping a rally that has seen prices leap by €19/tonne in just under six weeks.”
KraneShares went on to explain that the investors buying into EUAs drove the price action in recent weeks. In fact, long positions in EUAs for the week ending January 17 were the highest number of long positions in over three years. The surge in long positions coupled with a significant decline in short positions resulted in “the largest bullish bet in more than two years,” according to KraneShares.
The recent EU carbon allowances price performance proves notable and underscores the potential inherent in the asset class. What’s more, a strong, longer-term outlook for price fundamentals make a compelling case for EUA investment.
“Analysts at Macquarie Bank predict EUAs will average €78/tonne in 2025, rising to €90/tonne in 2026 and €105/tonne the year after,” KraneShares explained.
Diversify With an Overlooked Commodity Opportunity
Advisors and investors looking to gain access to the market would do well to consider KEAU. It offers targeted exposure to the EU carbon allowances market and is actively managed. By gaining exposure to EUAs, investors bring added diversification potential to their portfolios through international exposure as well as commodity exposure. It’s worth noting that, as with most commodities, carbon allowances carry the potential for enhanced volatility.
The fund’s benchmark is the S&P Carbon Credit EUA Index. The 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 is up 18.14% in the last month, and 13.17% on a price return basis in the last year, as of January 24, 2025, according to Y-Charts data. The fund carries a management fee of 0.82%.
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