Horizons launches global blockchain ETF on TSX

Jun 22nd, 2018 | By | Category: Equities

Horizons ETFs has launched the Horizons Blockchain Technology & Hardware Index ETF (BKCH CN) on Toronto Stock Exchange (TSX), becoming the latest in a string of ETF issuers this year to provide targeted access to blockchain technology companies.

Horizons launches global blockchain ETF on Toronto Stock Exchange

Blockchain is a decentralized database shared across all users that facilitates the process of recording transactions and tracking assets in a business network.

Blockchain is essentially a network of computers that keep transactions secure in a decentralized database, or digital ledger, similar to a shared spreadsheet, that the network can see and must approve before it can be verified and recorded.

Once recorded, no one person can change it without the agreement of others and it is nearly impossible to tamper with.

Blockchain is the technology that underpins cryptocurrencies, like bitcoin, but it has many more possible uses with the potential to move data of any kind swiftly and securely. A growing number of industries and institutions are looking to embed blockchain technology into their day-to-day processes.

Steve Hawkins, president and co-CEO of Horizons ETFs, commented, “From medical records, to natural resources to financial services, the applications of blockchain technology are practically endless. As the blockchain industry grows, so too will the potential holdings of BKCH, as more companies invest in developing blockchain technology directly or technology that supports the blockchain ecosystem.”[pullquote]”From medical records, to natural resources to financial services, the applications of blockchain technology are practically endless.”
Steve Hawkins, president and co-CEO of Horizons ETFs[/pullquote]

The fund tracks the recently unveiled Solactive Blockchain Technology & Hardware Index. The index follows global companies focusing on blockchain innovation and development, as well as companies providing hardware and hardware-related services used in the process of mining, an essential part in supporting blockchain technologies.

Its three-tiered approach is designed to provide exposure to the greater blockchain technology ecosystem compared with similar indices.

The three specific subsectors of the broader technology industry that the index tracks are: blockchain technology development, including companies directly developing blockchain-related applications; semiconductors, including companies focused on the hardware required for blockchain technology mining; and blockchain technology hardware and services, including companies developing memory and storage, and those supplying services important to large-scale mining on a commercial level.

Each subsector is assigned a third of the total index weight. Within each industry group, index components are equally weighted. The index is reconstituted and rebalanced quarterly.

“BKCH provides a diversified way to enter blockchain investing without taking on a lot of the risks of buying unknown, early stage technology companies,” said Hawkins. “Investors get exposure to a global portfolio of some of the larger pure-play blockchain companies, alongside well-established, global technology service and semiconductor providers that are benefiting from the growing global investment in this transformative technology.”

Timo Pfeiffer, head of research at Solactive, added: “Blockchain is one of the hottest topics in the financial world and beyond, as it has the potential to revolutionize many storage and economic processes. The Solactive Blockchain Technology & Hardware Index focuses on the infrastructure around the technology, the ‘shovel providers’ during the gold rush, to use an analogy. We are happy that Horizons ETFs, one of the biggest players in the Canadian ETF market, has chosen Solactive to turn this theme into an investable solution.”

While BKCH may provide exposure to miners, exchanges and other companies with cryptocurrency exposure, the ETF will not have direct exposure to physical crypto-assets and/or cryptocurrencies such as Bitcoin or initial coin offerings (ICOs). Furthermore, the ETF will not be directly involved in cryptocurrency mining.

Over half (56.6%) of the index exposure is dedicated to stocks listed in the US with a further quarter (26.5%) made up of Taiwan equities. Japan is the third largest country exposure with a weight of just 3.2%. There are currently 32 index constituents.

The index has returned 17.7% per annum since January 2012, with an annualized standard deviation of 16.1%, based on back-tested data. It has displayed a higher growth rate since the start of 2016 as the blockchain revolution became more mainstream; however, the index has stumbled somewhat since the start of the year.

Source: Solactive.

Dividends are reinvested back into the ETF, and all US dollar exposure is hedged back to Canadian dollars.

The fund has a management fee of 0.65%, cheaper than the rival First Trust Indxx Innovative Transaction and Process ETF (BLCK CN) which costs 0.80%. The Blockchain Technologies ETF (HBLK CN), from Harvest Portfolios, costs the same as BKCH but has a narrower scope in that it only invests in North American companies.

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