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Altana carbon futures strategy profits from November surge

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Altana Wealth’s carbon futures-focused strategy, which trades opportunities stemming from rising carbon credit costs in the European Union, has scored a near-60 per cent return since launching earlier this year.

The Altana Carbon Futures Opportunity gained 49.80 per cent last month, an emphatic return which pushed its year-to-date return to 59.52 per cent since launching in July.

As part of the EU’s commitment to combat climate change, the European Commission aims to drive up the price of carbon credits in order to push behavioural change among participating member states and companies.

Altana Wealth, the multi-strategy hedge fund led by former Trafalgar Asset Managers co-founder Lee Robinson, utilises a tail-risk hedge fund strategy which captures upside moves in the EU Carbon Emissions market through long bets on carbon futures, while systematically managing sudden sell-off or ‘left tail’ event risk.

In a strategy update, the firm said strong fundamentals, regulatory support, and bullish effects connected to option hedgers and an increasing number of market participants powered the EUA futures to its best month since December 2016, returning 28.15 per cent and closing the month at an all-time high of EUR75.26 per tonne.

“Seeing strong bullish market behaviours and increased acceptance by political bodies, we remain very optimistic on EU carbon over the coming months,” observed portfolio manager Callum Lee.

One key driver of last month’s price rises was a proposal from Germany’s incoming coalition government for a price floor, which would prevent carbon prices there from falling below EUR60 per tonne if the EU does not implement a price floor and help companies invest in low carbon technology. As a result, EUA prices duly soared to new highs.

At the same time, the sharp price rises were further bolstered by a self-enforcing mechanism resulting from option dealers hedging their gamma exposure, which Altana said could help sustain upward volatility in EUA futures further down the line.

Speaking to Hedgeweek earlier this year, Lee said that while the fund is not necessarily a direct ESG product, “it is a play on the EU juggernaut whose momentum is heading towards the reduction of carbon in the environment.”

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