The first blockchain ETF started trading in Germany in March 2019. The fund invests in stocks that have exposure to blockchain technology – with a focus on cryptocurrencies.
Although still a rare breed, investors can already buy blockchain ETFs. The first firms launched such funds in 2018, mostly in the US, although the US SEC did not allow issuers to use the term “blockchain” in the name of the fund.
In March 2019, the first blockchain ETF launched in Germany. With the Invesco Elwood Global Blockchain UCITS ETF, investors can buy a portfolio of blockchain stocks.
Blockchain ETFs aim at providing exposure to the technology’s growth potential
ETF stands for “Exchange Traded Fund.” Investors buy shares of a portfolio of assets and participate in its value appreciation. On the contrary to actively managed funds, there is no fund manager reallocating portfolio funds. Much like stocks, ETFs are traded on regulated exchanges.
For those who believe in the future potential of blockchain technology, it makes perfect sense to buy stocks of blockchain companies. That is what the Invesco Elwood Global Blockchain UCTIS ETF offers: a portfolio of stocks with blockchain exposure.
Chris Mellor, Head of EMEA ETF Equity Product Management at Invesco explains, “Our ETF offers investors access to companies that are profitable today and whose stock prices will benefit from the additional revenue potential of blockchain technology. Current stock prices don’t yet reflect this potential.”
The three main holdings primarily provide cryptocurrency exposure
The ETF invests in companies that are still early in the growth cycle. The main holdings are IT-companies (46 percent), financial industry firms (23 percent), and communication service providers (9 percent). Most holdings are based in the USA (39 percent), Japan (29 percent), and Taiwan (12 percent).
The largest portfolio holding is CME Group. The company is a worldwide leading derivate exchange provider. CME group could benefit from blockchain technology in two ways: Firstly, CME offers Bitcoin futures trading. Secondly, blockchain could disrupt financial trading and therefore offers enormous potential for CME’s trading platform.
The second largest holding is GMO Internet, a Japanese internet infrastructure and services provider. GMO also offers crypto trading platforms and mining services, which is the reason for its prominent placement in the fund.
The third largest title in the portfolio is the Taiwanese chip manufacturer TSMC. The company produces chips for crypto mining.
Conclusion: solid product but overexposure to cryptocurrencies
The top three holdings make for 15% of the total and show the cryptocurrency focus of this ETF. But cryptocurrencies are only one blockchain use case. A promising one, but to provide a truly diversified blockchain portfolio, much more use cases need to be included.
The fund seems to be a solid product. A Total Expense Ratio (TER) of 0.65% is alright, and many of the selected titles are reputable companies. With $20.5m, the fund’s volume is rather small, but considering its recent launch date, that shouldn’t be too much of a concern.
Investors, however, need to understand that this product does not provide a well-diversified exposure to the full potential of blockchain technology. Instead, it emphasizes one limited use case.