CTWO Reports Initial Loss Amidst Carbon Allowance Trading Debut

TL;DR

**CTWO's debut 10-Q shows a tiny loss, but the real story is the 0.79% sponsor fee eating into nascent carbon market gains – watch those expenses!**

AI Summary

COTWO ADVISORS PHYSICAL EUROPEAN CARBON ALLOWANCE TRUST (CTWO) reported a net decrease in net assets of $42 for the period from April 29, 2025, to August 31, 2025, and for the three months ended August 31, 2025. The Trust commenced operations on June 17, 2025, and its investment objective is to reflect the performance of EU Carbon Emission Allowances (EUAs). Total assets stood at $2,540,649 as of August 31, 2025, primarily comprising $2,516,249 in EUAs at fair value and $24,327 in cash and cash equivalents. The Trust generated $154 in interest income but incurred $3,875 in sponsor fees, resulting in a net investment loss of $3,721. A net realized gain of $6,657 from FX transactions partially offset a net change in unrealized loss of $2,359 on EUA investments and a realized loss of $619 from EUAs sold to pay expenses. The Trust issued 150,000 shares, contributing $2,539,025 in capital, bringing total net assets to $2,538,983, with a net asset value per share of $16.93.

Why It Matters

CTWO's inaugural 10-Q provides the first look at its performance as a pure-play investment vehicle for European carbon allowances, a critical asset class for investors focused on climate policy and ESG. The initial net loss of $42, while small, highlights the immediate impact of sponsor fees and market fluctuations in EUAs and foreign exchange on a newly launched fund. For investors, this filing offers transparency into the operational costs (0.79% annual sponsor fee) and the valuation methodology (Level 2 assets for EUAs). Employees and customers of companies subject to the EU ETS will watch CTWO's performance as a proxy for the cost of carbon, influencing their operational strategies and product pricing. In the competitive landscape of carbon market ETFs, CTWO's ability to track EUA prices effectively, despite initial operational losses, will be key to attracting and retaining capital.

Risk Assessment

Risk Level: medium — The Trust's primary asset, EUAs, are subject to market price volatility, as evidenced by the $2,359 net change in unrealized loss on investment in EUAs for the period. Additionally, the Trust is exposed to foreign currency risk, with a $6,657 net realized gain from FX transactions indicating significant currency movements that could also turn negative. The 0.79% annual sponsor fee, totaling $3,875 for the period, represents a fixed cost that can erode returns, especially in periods of flat or declining EUA prices.

Analyst Insight

Investors should closely monitor CTWO's expense ratio and the volatility of EUA prices, as the 0.79% sponsor fee significantly impacts returns, especially given the initial net investment loss of $3,721. Consider this a speculative play on European carbon markets, understanding that currency fluctuations and market-specific risks are inherent. Diversify exposure to carbon markets rather than relying solely on CTWO.

Financial Highlights

debt To Equity

N/A

revenue

$154

operating Margin

N/A

total Assets

$2,540,649

total Debt

$1,666

net Income

$ (42)

eps

$ (0.00)

gross Margin

N/A

cash Position

$24,327

revenue Growth

N/A

Key Numbers

• $2,540,649 — Total Assets (As of August 31, 2025, primarily EUAs and cash.)
• $2,516,249 — Investments in EUAs at fair value (Represents 99.10% of net assets as of August 31, 2025.)
• $24,327 — Cash & Cash Equivalents (Held for operations and creation transactions.)
• $1,666 — Total Liabilities (Primarily sponsor fees payable as of August 31, 2025.)
• $2,538,983 — Net Assets (As of August 31, 2025, after initial operations.)
• 150,000 — Shares issued and outstanding (As of August 31, 2025, and October 13, 2025.)
• $16.93 — Net asset value per Share (As of August 31, 2025.)
• $154 — Interest Income (For the period April 29, 2025, to August 31, 2025.)
• $3,875 — Sponsor fees (Total expenses for the period April 29, 2025, to August 31, 2025.)
• $42 — Net decrease in net assets from operations (For the period April 29, 2025, to August 31, 2025.)

Key Players & Entities

• COTWO ADVISORS PHYSICAL EUROPEAN CARBON ALLOWANCE TRUST (company) — Registrant
• CTWO Advisors LLC (company) — Sponsor of the Trust
• Wilmington Trust, National Association (company) — Trustee
• State Street Bank and Trust Company (company) — Administrator, Transfer Agent, and Custodian
• NYSE Arca (regulator) — Exchange where CTWO shares are traded
• U.S. Securities and Exchange Commission (regulator) — Regulatory body
• ICE Endex Markets B.V. (company) — Exchange for Daily EUA Future
• Dutch Authority for the Financial Markets (regulator) — Regulator of ICE Endex
• FINRA (regulator) — Financial Industry Regulatory Authority
• DTC (company) — Depository Trust Company

FAQ

Risk Factors

• EUA Price Volatility [high — market]: The Trust's primary investment is in EU Carbon Emission Allowances (EUAs). The fair value of these investments was $2,516,249 as of August 31, 2025, representing 99.10% of net assets. Fluctuations in the market price of EUAs can lead to significant unrealized losses, as evidenced by the $2,359 net change in unrealized loss on EUA investments during the period.
• Operational Commencement and Limited History [medium — operational]: The Trust commenced operations on June 17, 2025. As of August 31, 2025, the Trust had only been operational for a short period, resulting in a net decrease in net assets of $42. This limited operating history means there is less data to assess long-term performance and operational efficiency.
• Sponsor Fees Impact on Net Assets [medium — financial]: Sponsor fees amounted to $3,875 for the period from April 29, 2025, to August 31, 2025. These fees contributed to a net investment loss of $3,721 and directly reduced the net assets of the Trust, highlighting the impact of operational costs on a newly formed entity.
• Foreign Exchange Rate Fluctuations [medium — market]: The Trust engages in foreign exchange transactions, which can result in realized gains or losses. A net realized gain of $6,657 from FX transactions was recorded, partially offsetting other losses. However, the potential for adverse currency movements introduces another layer of market risk.

Industry Context

The Trust operates within the environmental commodities market, specifically focusing on the European Union Emissions Trading System (EU ETS). This market is driven by regulatory policies aimed at reducing greenhouse gas emissions. The value of EUAs is influenced by factors such as regulatory stringency, economic activity, and the availability of alternative energy sources. The competitive landscape includes other investment vehicles and direct participants in the carbon market.

Regulatory Implications

The Trust's operations are subject to financial regulations governing investment funds and the specific rules of the EU ETS. Changes in climate policy or the structure of the EU ETS could materially impact the value of its EUA holdings. Compliance with reporting requirements for its 10-Q filing is essential.

What Investors Should Do

1. Monitor EUA market trends and regulatory developments.
2. Evaluate the impact of sponsor fees on net asset growth.
3. Consider the Trust's limited operating history.

Key Dates

• 2025-04-29: Effective date of registration statement — Marks the formal beginning of the Trust's registration process, preceding its operational commencement.
• 2025-06-17: Trust commenced operations — The date from which the Trust began actively investing and operating, initiating its investment objective.
• 2025-08-31: Statement of Financial Condition date — Provides a snapshot of the Trust's assets, liabilities, and net assets at the end of the reporting period.
• 2025-08-31: Statement of Operations period end — Covers the financial performance of the Trust for the three months and the period since inception up to this date.

Glossary

EUAs

European Union Carbon Emission Allowances, which represent the right to emit one tonne of carbon dioxide equivalent. (The primary investment asset of the Trust, directly influencing its performance and value.)

Fair Value

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. (Used to value the Trust's EUA holdings, which constitute the vast majority of its assets.)

Sponsor Fees

Fees paid to the entity that sponsors or manages the Trust, covering operational and administrative costs. (A direct expense that reduces the Trust's net investment income and net assets.)

Net Asset Value (NAV) per Share

The total value of a fund's assets minus its liabilities, divided by the number of outstanding shares. (Indicates the per-share market value of the Trust's holdings and is a key metric for investors.)

Unrealized Gain/(Loss)

The change in value of an investment that has not yet been sold. It represents the potential profit or loss if the investment were sold at the current market price. (Reflects the impact of market price changes on the Trust's EUA investments, contributing to overall performance fluctuations.)

Year-Over-Year Comparison

As this is the Trust's initial 10-Q filing since commencing operations on June 17, 2025, there are no prior period comparative financial statements available. Therefore, a comparison of key metrics such as revenue growth, margin changes, or new risks against a previous year's filing is not possible at this time. The filing provides a baseline for future performance tracking.

Key Financial Figures

• $0.00 — ited and the par value of the Shares is $0.00. See notes to the unaudited financial
• $0.01 — ations on June 17, 2025 (c) Less than $0.01 per share. 3 COTWO ADVISORS PHYSICAL

Filing Documents

• ea0261300-10q_cotwo.htm (10-Q) — 285KB
• ea026130001ex31-1_cotwo.htm (EX-31.1) — 11KB
• ea026130001ex31-2_cotwo.htm (EX-31.2) — 10KB
• ea026130001ex32-1_cotwo.htm (EX-32.1) — 5KB
• ea026130001ex32-2_cotwo.htm (EX-32.2) — 6KB
• image_001.jpg (GRAPHIC) — 105KB
• 0001213900-25-099117.txt ( ) — 2610KB
• ctwo-20250831.xsd (EX-101.SCH) — 23KB
• ctwo-20250831_cal.xml (EX-101.CAL) — 20KB
• ctwo-20250831_def.xml (EX-101.DEF) — 77KB
• ctwo-20250831_lab.xml (EX-101.LAB) — 157KB
• ctwo-20250831_pre.xml (EX-101.PRE) — 92KB
• ea0261300-10q_cotwo_htm.xml (XML) — 236KB

- FINANCIAL INFORMATION

PART I - FINANCIAL INFORMATION 1 Item 1.

Financial Statements (unaudited)

Financial Statements (unaudited) 1 at August 31, 2025 (unaudited) 1 Schedule of Investments at August 31, 2025 (unaudited) 2 for the periods April 29, 2025 to August 31, 2025 and the three months ended August 31, 2025 (unaudited) 3 for the period April 29, 2025 to August 31, 2025 (unaudited) 4 Net Assets for the periods April 29, 2025 to August 31, 2025 and the three months ended August 31, 2025 (unaudited) 5 Notes to the Unaudited Financial 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 Item 4.

Controls and Procedures

Controls and Procedures 19

- OTHER

PART II - OTHER INFORMATION 20 Item 1.

Legal Proceedings

Legal Proceedings 20 Item 1A.

Risk Factors

Risk Factors 20 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20 Item 3. Defaults Upon Senior Securities 20 Item 4. Mine Safety Disclosures 20 Item 5. Other Information 20 Item 6. Exhibits 20

SIGNATURES

SIGNATURES 22 i COTWO ADVISORS PHYSICAL EUROPEAN CARBON ALLOWANCE TRUST

- FINANCIAL INFORMATION

PART I - FINANCIAL INFORMATION:

Financial Statements (Unaudited)

Item 1. Financial Statements (Unaudited) At August 31, 2025 ASSETS Investments in European Union Carbon Emission Allowances ("EUAs"), at fair value (cost $ 2,518,608 ) $ 2,516,249 Cash & Cash Equivalents 24,327 Interest Receivable 73 Total Assets $ 2,540,649 LIABILITIES Sponsor Fees $ 1,666 Total Liabilities $ 1,666 Net Assets $ 2,538,983 Shares issued and outstanding(1) 150,000 Net asset value per Share $ 16.93 (1) Authorized share capital is unlimited and the par value of the Shares is $0.00. See notes to the unaudited financial statements. (a) No comparative financial statements have been provided as the Trust did not have any operations as of November 30, 2024. 1 COTWO ADVISORS PHYSICAL EUROPEAN CARBON ALLOWANCE TRUST Schedule of Investments (unaudited) (a) At August 31, 2025 August 31, 2025 EUAs Held Cost Fair Value % of Net Assets EUAs 29,700 $ 2,518,608 $ 2,516,249 99.10 % Short-Term Investments (b) 24,327 24,327 24,327 0.96 % Total Investment $ 2,542,935 $ 2,540,576 100.06 % Liabilities in Excess of Other Assets ( 1,593 ) - 0.06 % Net Assets $ 2,538,983 100.00 % See notes to the unaudited financial statements. (a) No comparative financial statements have been provided as the Trust did not hold any EUAs as of November 30, 2024. (b) The annualized 7-day yield as of August 31, 2025 of the SSC GOVERNMENT MM GVMXX is 4.23%. 2 COTWO ADVISORS PHYSICAL EUROPEAN CARBON ALLOWANCE TRUST For the three months ended For the period from April 29, 2025 (a) to August 31, 2025 (b) August 31, 2025 (b) INVESTMENT INCOME Interest Income $ 154 $ 154 EXPENSES Sponsor fees $ 3,875 $ 3,875 Total expenses 3,875 3,875 Net investment income/(loss) $ ( 3,721 ) $ ( 3,721 ) NET REALIZED AND UNREALIZED GAIN/(LOSS) Net realized gain/(loss) from EUAs sold to pay expenses $ ( 619 )

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View this 10-Q filing on SEC EDGAR