Grayscale Investments, the world’s largest digital asset manager, has made its European ETF debut with the launch of a thematic equity strategy targeting companies at the confluence of technology, finance and the emerging digital asset economy.
Michael Sonnenshein, CEO of Grayscale Investments.
The Grayscale Future of Finance UCITS ETF has been listed on London Stock Exchange in US dollars (GFOF LN) and pound sterling (GFOP LN) as well as on Deutsche Börse Xetra (GF0F GY) and Borsa Italiana (GFOF IM) in euros.
The fund, which is being passported for sale across Europe, has come to market in collaboration with London-based white-label ETF platform HANetf which is responsible for marketing and distribution responsibilities.
The ETF is linked to the Bloomberg Grayscale Future of Finance Index which also serves as the underlying index on the US-listed Grayscale Future of Finance ETF (GFOF US) which debuted on NYSE Arca in February.
The index harnesses Bloomberg’s thematic basket approach, searching beyond traditional industry divisions in order to identify companies relevant to an underlying theme.
The ‘Future of Finance’ theme encompasses companies that are perceived to be best poised to contribute significantly to the growth of the digital economy ecosystem over the next two years.
The theme categorizes eligible companies under three key pillars: financial foundations (buyers, sellers, and other transactors in digital assets including asset managers, exchanges, brokerages, and wealth managers); technology solutions (companies developing financial applications utilizing blockchain technology); and digital asset infrastructure (miners, hardware providers, and energy managers).
A list of potential constituents is first drawn up by harnessing the insights of Bloomberg Intelligence analysts in combination with Bloomberg’s natural language processing tool that scours company documents for keywords related to the underlying theme.
Using a combination of data analytics and analyst expertise, each potential company is then assigned three separate scores, each with a ranking of 1 (high/most favourable), 2 (medium), or 3 (low/least favourable). The scores include a Revenue Score, which measures a firm’s potential revenue exposure to the theme over the next two years; a Theme Score, which measures a firm’s relative importance to the overall development of the Future of Finance theme; and a Regulatory Score, which measures the company-specific risk associated with the current regulatory landscape and potential changes in regulation. Companies must achieve at least a 1 or 2 on each of the three scores to be selected for the index.
Chosen constituents are weighted by market capitalization subject to a cap of 8% on each of the five largest stocks and a cap of 4% on any other company. Reconstitution and rebalancing occur quarterly.
As of the end of April, the index contained 21 constituents. Just over half (56.6%) of the total weight was allocated to US-listed stocks with the next-largest country exposures being Canada (16.5%), China (6.5%), Israel (5.5%), and Germany (5.3%).
Information technology stocks dominated with a combined weight of approximately 60% while the remaining allocation was assigned to stocks from the financials sector.
Notable positions included Silvergate Capital (9.3%), PayPal (8.3%), Block (8.2%), Robinhood Markets (7.7%), Coinbase Global (6.7%), Plus500 (5.5%), Northern Data (5.3%), and Argo Blockchain (4.90%).
The ETF comes with an expense ratio of 0.70%.
Michael Sonnenshein, CEO of Grayscale Investments, commented: “We announced our first ETF earlier this year in partnership with Bloomberg as part of the expansion of our business. With growing global demand from both institutional and individual investors for Grayscale products, we’re thrilled to be expanding our offering in Europe through the UCITS wrapper. This product draws upon our historical strengths while furthering our evolution as an asset manager that helps investors build portfolios that can stand the test of time. It is the natural next step in our global strategic journey.”
David LaValle, Global Head of ETFs at Grayscale Investments, added: “At Grayscale, we have long believed that the digital economy will be a major driver for the development and growth of the global economy. Through this ETF, European investors now have the opportunity to receive exposure to the companies that are pivotal to the evolution of the global financial system. We are incredibly proud to reach this international milestone as Grayscale remains at the forefront of digital currency investing.”
Hector McNeil, co-CEO and co-Founder of HANetf, said: “In the past few years, we have seen an explosion of digital innovations and solutions disrupting the global financial sector, making it more accessible, transparent, and inclusive. We are excited to work with a trusted partner like Grayscale to bring an ETF to the European market providing exposure to the digital economy.”