Given the future promise and expectation of blockchain technologies, publicly traded companies that have built their business around this core-technology are seeing increased demand. For potential investors, blockchain technologies may likely be used by any firm they may invest in; blockchain-based or not. Connecting the dots, finding a fundamental/ growth perspective company becomes a tedious task for majority investors.
Let’s assume that you are confident about the future of the blockchain technology. You wish to gain monetary returns from your assumptions. You take up and invest in any one stock or handful of few crypto stocks.
Let’s say – HUT 8 Mining. You have fully invested in this company and remained hopeful about the rise of the blockchain technology. Somehow, somewhere the company/ management/ business does not perform the way you had expected. You’re investment amount vanishes or you may experience a loss. To add salt on your wounds, Bitcoin and/or the Cryptocurrency market surges exactly as your were expecting. Just imagine how painful that situation could be. (BTW, we have recently covered the HUT 8 Mining Corp – have a glance over this debt free company).
However, there is one basic principle of investing that is missing here – Diversification
So in such a situation, what if some well-experienced fund manager who had capital market experience, paired with blockchain technology experience, come forward and invest in various fundamentally sound companies using the power of diversification?
This is the biggest benefit of “ETF: Exchange-traded fund“. Some other advantages include – it trades like a stock, expertise of the fund manager in creating the portfolio, margin facility availability for buying and selling, and other benefits.
On 17th January 2018, below two ETFs came into existence:
Later on, following the formers, two more ETFs were introduced to the market.
- First Trust Index Innovative Transaction & Process ETF (LEGR)
- Innovation Shares NextGen Protocol ETF (KOIN)
The Reality Shares Nasdaq NexGen Economy ETF (BLCN)
Below we take a closer look at the details on the Reality Shares BLCN ETF.
We have extracted some data from its official website page.
The Reality Shares Nasdaq NexGen Economy ETF (the “Fund”) seeks long-term growth by tracking the investment returns, before fees and expenses, of the Reality Shares NASDAQ Blockchain Economy Index (the “Index”).
As per the factsheet, BLCN majorly invests into the Large Cap Stocks more. They have quoted in their objective as “Long-term growth“. Companies are filtered using a seven-step process called “Blockchain score”. This is to measure the actual future potential of the firm in Blockchain.
These measures are rebalanced in every six months. But, considering the dynamic nature of blockchain environment (way too much volatility), six months seems to be a long period for rebalancing.
Top Holdings of BLCN
As we can see from these holdings,
- Companies are also from non-US countries like here in the top 10, Fujitsu Ltd of Japan. So, the ETF not only invests in US Companies but also in non- US Companies which is a plus, as we will get the golden opportunity to invest in a foreign country firm. The diversification to other geographical location provides and mitigates the risk of regulatory hurdles in a single country.
- Mostly Large Cap Companies.
- Also included companies which is indirectly related to blockchain, Advanced Micro Devices Inc. is the largest holding and that is most likely because they are the large manufacturer of the chips needed for all the crypto mining going on. So direct & indirect investments are done, which we would say is pretty wise decision.
- In this manner, any step of any company which may have direct or indirect benefit for the blockchain community is hence taken into consideration for further methodology application.
Characteristics of BLCN Portfolio
Insights from the portfolio,
- Segment wise: The firm seems to be highly bullish on IT & Financials, less on Customer Discretionary & Industries.
Blockchain being a process which will affect almost every sector, more diversification should have included.
- Continent wise: Major investments in North America & Asia, minor interest in Europe.
Other continents too will soon understand and start inception of blockchain in their operations.
We believe Blockchain ETFs are something that can possibly be an excellent vehicle to reduce portfolio risk and provide a great way of risk adjusted returns instruments. We’ll continue to cover the rest of the three instruments in the coming periods.