VanEck has launched a new thematic equity ETF in Europe providing exposure to companies deriving significant revenue from the digital assets ecosystem.
Gabor Gurbacs, Director of Digital Assets Strategy at VanEck.
The VanEck Vectors Digital Assets Equity UCITS ETF has listed on London Stock Exchange in US dollars (DAPP LN) and pound sterling (DAGB LN) and on Deutsche Börse in euros (DAVV GY).
While Europe already has a couple of ETFs focused on the broader blockchain investment theme, including funds from Invesco and First Trust, DAPP is understood to be the first on the continent to target companies engaged specifically in digital asset projects.
This includes miners, trading platforms, hardware manufacturers, holding and trading specialists, payment gateway operators, patents and services specialists, and bankers.
The fund does not invest in actual digital assets, such as bitcoin, either directly or indirectly.
VanEck rolled out the same strategy in the US in mid-April, namely the VanEck Vectors Digital Transformation ETF (DAPP US) on Nasdaq. It currently houses $25 million in assets.
Methodology
Both the new European UCITS ETF and the US-listed equivalent are linked to the proprietary MVIS Global Digital Assets Equity Index which selects its constituents from a universe of developed and emerging market companies with market capitalizations greater than $150m and average daily trading volume above $1m.
To be eligible for inclusion, a company must generate at least 50% of its revenue from digital asset projects or have at least 50% of its assets invested in digital asset projects or direct digital asset holdings.
To capture non-established but upcoming companies, the methodology also includes firms that are likely to generate at least half of their revenue from digital asset projects once their current projects under development are completed.
The index targets at least 25 constituents; however, due to the lack of pure-play companies in the global digital assets segment, semiconductor and online money transfer companies may be added to the index to reach this minimum component number.
Constituents are weighted by float-adjusted market capitalization subject to a cap of 8% on any single stock. The index rebalances on a quarterly basis.
Stocks from the US presently make up nearly two-thirds (64.0%) of the total index allocation with the remaining weight distributed across stocks from China (11.8%), Canada (11.6%), Germany (4.9%), Taiwan (4.6%), and the UK (3.1%).
Perhaps unsurprisingly, information technology stocks dominate with a combined weight of 77.5% with the majority of the remainder of the portfolio allocated to companies in the financials sector at 19.6%.
The index has a strong mid-cap leaning with these companies accounting for over half (51.9%) of the index by weight, while a quarter (27.9%) is allocated to large-caps and 16.1% to small-caps. Notable positions include Galaxy Digital (9.2%), Square (8.6%), Voyager Digital (7.6%), Riot Blockchain (6.1%), Marathon Digital (6.1%), Nvidia (5.4%), and Silvergate Capital (5.3%).
The fund comes with an expense ratio of 0.65%. Income is accumulated within the portfolio.
Structural growth
The opportunity set of publicly traded, pure-play companies linked to the digital assets ecosystem is still small but has grown in both size and revenues over the last few years.
According to VanEck, revenue generated by the companies included in the ETF’s index accelerated rapidly in 2020 to surpass $10 billion, up from approximately $6bn and $5bn in the previous two years (see chart below).
And despite underlying volatility in digital assets themselves, many publicly traded companies are investing heavily in new business lines to position themselves favourably as adoption continues to accelerate.
Martijn Rozemuller, CEO in Europe at VanEck, said: “The digital transformation is changing large parts of our economy. This is not just short-term hype, but rather is a long-term, structural development. Blockchain applications are finding more areas of use that now extend way beyond cryptocurrencies. Consequently, investors are increasingly looking to digital assets for investment opportunities.”
Gabor Gurbacs, Director of Digital Assets Strategy at VanEck, added: “Digital assets have gained tremendous momentum around the world in recent years. In addition to cryptocurrencies, which have seen strong growth, companies that provide the necessary infrastructure and enable digital asset trading and background processes in the first place are also benefiting. For investors who cannot or do not want to invest directly in individual cryptocurrencies, the ETF provides a good opportunity to invest in digital asset companies in both a targeted and diversified manner and to benefit from the positive development of the sector.”
Source: VanEck.