XShares Advisors LLC has announced that it plans to close the AirShares EU Carbon Allowances Fund (NYSE Arca: ASO).

Entering July, the exchange-traded product had just $4 million in assets. ASO launched in December 2008 with nearly $5 million in seed money as an asset base.

ASO is actually a commodity pool that tracks a basket of exchange-traded futures contracts for European Union allowances (EUAs). Each contract provides for delivery of 1,000 EUAs at a specified price.

The ETF-like product, as AirShares refers to ASO, invests in futures contracts that expire each December beginning in 2009 and extending through 2012. As contracts approach their December expiration, the fund sells expiring contracts and replaces them with contracts of later expirations.

Since the commodities involved aren't physically deliverable, ASO can't be considered an ETF. But it acts like many exchange-traded commodities products that are popular in Europe.

Carbon exchange-traded products began appearing in the second half of last year to much hoopla. But their role in a diversified investment portfolio remains in debate since little in the way of research is out on how investing in such a niche corner of the market can impact long-term portfolios.

That has led to speculation that only traders well-versed in carbon emissions markets would trade such futures contracts through an exchange-traded product.

ASO was actually the second such fund of its type. Another type of fund, referred to as an exchange-traded note, was first to market in the carbon field. Last June, Barclays Capital gained first-mover status into the U.S. exchange-traded products market for carbon emissions with its iPath Global Carbon ETN (NYSE Arca: GRN).

Just like ASO, it trades throughout the day along an exchange. But GRN is priced a bit cheaper at 0.75%. As an ETN, however, GRN carries counterparty risk since it actually represents an investment in unsecured debt notes.

Interestingly, GRN isn't doing any better than ASO. It has less than $3 million in total assets.

In announcing the shuttering of ASO, XShares said that it "has considered the current market conditions and the growth prospects of the small fund in the foreseeable future and decided that liquidation was in the best interests of the fund and its shareholders."

The fund is eligible to de-register because it has fewer than 300 common stock shareholders of record.

Shareholders may sell their shares without transaction fees on or before July 31, the firm added in its statement. All shareholders of record remaining on that day will receive cash equivalent to the net asset value of their shares as of the same date, including any capital gains and dividends.

-- This article was submitted by IndexUniverse.com's Murray Coleman.