Crypto specialist ETC Group and white-label issuer HANetf have extended their partnership with the unveiling of the ETC Group Digital Assets & Blockchain Equity UCITS ETF.
Bradley Duke, CEO of ETC Group (left); Hector McNeil, co-Founder and co-CEO of HANetf.
The fund, which is set to list on London Stock Exchange in US dollars (KOIN LN) and pound sterling (KOIP LN), offers thematic equity exposure to companies operating within the digital assets and blockchain ecosystem.
ETC Group and HANetf are the principal protagonists behind the hugely successful $1.6 billion BTCetc – ETC Group Physical Bitcoin (BTCE), the world’s largest directly backed bitcoin ETP.
The partners’ latest offering provides investors with a liquid, low-cost vehicle to tap into digital infrastructure companies poised to benefit from the blockchain revolution, including those with operations in cryptocurrency mining, blockchain technology, and cryptocurrency trading and exchanges.
According to analysts at PwC, blockchain technology has the potential to add over $1.37 trillion to the global economy by 2030.
The fund may also appeal to investors who are prevented from accessing digital asset markets directly or from holding non-UCITS, physically-backed crypto products.
Methodology
The fund is linked to the Solactive ETC Group Digital Assets and Blockchain Equity Index which selects its constituents from a universe of developed market stocks with market capitalizations above $100 million and average daily trading volumes greater than $1m.
Security selection is driven by Solactive’s proprietary natural language processing algorithm, called ARTIS, which identifies firms linked to a specific theme by screening publicly available information such as financial news, business profiles, and company publications for appropriate keywords.
With reference to the digital assets and blockchain theme, the algorithm is programmed to identify companies with business operations linked to the provision of blockchain-based solutions and services, the mining of digital assets, the development of hardware and software used in blockchain applications, the provision of cryptocurrency and NFT marketplaces, the provision of services to the blockchain industry, and the operation of blockchain farms.
Each company identified by the algorithm receives a score that reflects its exposure to the theme based on the intensity of relevant keywords.
Eligible firms are classified as either ‘pure-play’ or ‘non-pure-play’. Pure-play companies operate in the fields of cryptocurrency mining, blockchain technology, or cryptocurrency custody, trading, and exchanges.
The methodology selects all pure-play companies for inclusion. If at this point in the construction process the index contains fewer than 30 constituents, non-pure-play companies with the highest ARTIS thematic relevance scores which are classified to sectors other than Electronic Payment Processing and Consumer Durables are added until 30 constituents are reached.
Constituents are weighted by float-adjusted market capitalization while limiting the weight of each pure-play company between 2% and 10% and the weight of each non-pure-play company between 0.5% and 4%.
The index is reconstituted and rebalanced on a quarterly basis.
Based on data as of October month-end, nearly two-thirds (62.8%) of the index by weight is allocated to stocks from the US with the next-largest country exposures being Canada (14.4%), China (11.0%), and Japan (4.9%). Just over half (50.2%) of the index is allocated to stocks from the technology services sector with a further quarter (22.3%) dedicated to the financials sector and a fifth (17.5%) to stocks classified within electronic technology.
Notable positions include Marathon Digital (11.7%), Coinbase Global (11.1%), Galaxy Digital (8.1%), Riot Blockchain (6.4%), Hut 8 Mining (6.3%), and Overstock.com (4.7%).
The ETF comes with an expense ratio of 0.60%.
Complement to physical
Commenting on the launch, Bradley Duke, CEO of ETC Group, said: “Digital assets and blockchain have begun to persist in almost every sector and industry worldwide. Due to its secure data, transparency, and efficiency, blockchain and distributed ledger technologies are transforming a wide variety of industries from banking and financial service to healthcare and life science. We’re thrilled to be able to launch the ETC Group Digital Assets & Blockchain Equity UCITS ETF to offer an alternative to investors who seek exposure to blockchain and digital assets but are unable to access cryptocurrencies or digital asset-backed ETPs directly.”
Hector McNeil co-Founder and co-CEO at HANetf, added: “We are delighted to partner with ETC Group again to offer a complementary product to the existing suite of exchange-traded cryptocurrencies. Launching the ETC Group Digital Assets & Blockchain Equity UCITS ETF further expands our range of innovative ETFs and ETCs on the HANetf platform.”
The fund is the latest equity ETF in Europe to target companies aligned with the digital assets and/or blockchain theme.
Existing products in the broad space include the $1.1bn Invesco CoinShares Global Blockchain UCITS ETF (BCHN LN), the $167m First Trust Indxx Innovative Transaction & Process UCITS ETF (LEGR LN), the $40m VanEck Vectors Digital Assets Equity UCITS ETF (DAPP LN) and the recently launched Melanion BTC Equities Universe UCITS ETF (BTC FP).
Investors should note, though, that these competing funds vary widely in their exposure. The Invesco fund, for example, holds positions in companies as diverse as Banco Santander, Norsk Hydro, Rio Tinto, Samsung Electronics, and Tesla – not companies immediately associated with blockchain. The First Trust fund is similarly diverse.
The new fund from ETC Group/HANetf appears well placed to serve the needs of investors who are seeking a more finely targeted and precisely curated exposure to digital assets and the blockchain ecosystem rather than the broader-brush approach of some of the existing options. It is also the cheapest, at 0.60%.