Many investors have just about had it with stocks. And with ETF innovation continuing at breakneck pace, you can invest in markets that have just about nothing to do with investments you're familiar with.

For example, the AirShares EU Carbon Allowances Fund (NYSE:ASO) gives investors a chance to access the carbon trading market in Europe. The fund is an extension of the ETF concept, but instead of a mutual fund, it is organized as a commodity pool. The fund is the first exchange-traded product that provides exposure to carbon emission markets without counterparty credit risk. Although shares of the fund may be bought and sold like other exchange-traded vehicles, there are some significant differences between this fund and more common products like ETFs and ETNs.

Fund facts
Inception date: Dec. 15, 2008
Expense ratio: 0.85%
Net assets: $5 million

Fund specifics
In contrast to a traditional ETF such as the SPDR (AMEX:SPY), the AirShares fund is passively managed and does not track an index; instead, it tracks a basket of exchange-traded futures contracts for European Union Allowances (EUAs), which permit the holder to emit carbon dioxide. The portfolio of the AirShares fund consists of a basket of up to four listed December EUA futures contracts. These investments are unleveraged and are collateralized by cash, cash equivalents, and U.S. government obligations.

Fund prospects and risks
The limited experience of the fund's manager and commodity trading advisor, who is responsible for trading the fund's futures contracts, are factors which may restrict the success of the fund. The trading activities of the fund also subject shareholders to currency risk, since the prices of EUAs and related futures contracts that the fund invests in are denominated in Euros. Additionally, futures trading can incur trading losses, which may reduce the value of the fund quickly. Whether the fund achieves capital gains or losses, an investment in a commodity fund is different from stock and bond investing, so it would be a good idea to consult your tax adviser about possible tax consequences.

In addition, because the fund is a commodity pool, shareholders do not have the protections provided to ETF shareholders under the Investment Company Act of 1940. Commodity trading is speculative, and the fund may not be suitable for many investors.

Unlike its direct competitor, the iPath Global Carbon ETN (GRN), the Airshares fund does not carry counterparty risk, which is a huge difference in these uncertain credit markets.

Market prospects
According to the World Bank, the global carbon market grew to a $64 billion market in 2007, more than doubling from 2006.

That rapid growth did not go unnoticed, as Morgan Stanley (NYSE:MS) announced plans to invest $3 billion to trade carbon. But this rapid growth slowed in 2008, and as oil experienced massive declines in price, carbon prices suffered similar drops. Investment banks revised their forecasts for the market, with Deutsche Bank (NYSE:DB) in mid-December cutting its expectations for European industrial emissions futures.

In a further indication of how much carbon trading has been impacted by the global economic slowdown, Credit Suisse (NYSE:CS) announced in late 2008 that it would cut its New York carbon team in half as a de-emphasizing of this business.

Even with the slowdown, the Kyoto Protocol requires ratifying nations to reduce their emissions of greenhouse gases or engage in emissions trading if they maintain or increase emissions of those gases. Companies with European operations could be impacted by emissions controls, such as global power company AES (NYSE:AES) and ConocoPhillips (NYSE:COP). The limitations imposed by the agreement provide support for carbon trading. However, supply and demand for EUAs may be impacted by many factors, including new technologies that curb carbon emissions and changes to the regulation of carbon emissions. All in all, a bet on this fund requires confidence in strong economic activity continuing in Europe.

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