China-Focused Blockchain ETF Launches

June 20, 2018

Blockchain is one of the hottest spaces in technology right now, and this year has seen a bevy of funds launched around that theme. Now one of the first firms to launch such a fund is following up its global ETF launched in January with the rollout of the Reality Shares Nasdaq NexGen Economy China ETF (BCNA), which focuses specifically on blockchain-focused companies domiciled in China.

The fund comes with an expense ratio of 0.78% and lists on the Nasdaq stock exchange.

Reality Shares was one of two issuers (Amplify was the other) to launch the first blockchain-focused funds back in January. The Reality Shares Nasdaq NexGen Economy ETF (BLCN) quickly gathered assets, and currently has $130.5 million in AUM.

Interest in blockchain hit the mainstream with the rise of bitcoin, as blockchain is the technology that underlies the cryptocurrency concept. However, it has vast potential for other applications, which is really driving investor interest.

“China has made a big push on blockchain. Chinese companies own three times as many patents as U.S. companies do. It’s more than any other country in the world,” said Reality Shares President and CEO Eric Ervin. He also noted that blockchain was featured prominently in the Chinese government’s latest Five-Year Plan.

Methodology

BCNA has a similar methodology to BLCN. The new fund focuses on companies committing significant resources to developing and using blockchain’s digital ledger technology, including making it more efficient and secure in terms of transactions, according to the prospectus.

Companies eligible for inclusion must meet size and liquidity requirements, with those included in the final selection pool scored based on their exposure to and likelihood of benefiting from the technology. The index can include 30-100 of the top-scoring companies and weight them based on their scores, the document says.

A-shares, H-shares and ADRs are all eligible for inclusion, and the prospectus notes the fund is expected to have concentrations in the consumer discretionary, financials, industrials and information technology sectors. As of June 1, BCNA’s underlying index included companies ranging in size from $559.4 million to $537.4 billion.

Ervin says there is not a lot of overlap between BLCN and BCNA, with perhaps six companies landing in both funds. He points out that A-shares are not included in BLCN, while most of the companies currently in BCNA are A-shares securities.

He also notes that his firm’s scoring methodology and research is being licensed by a financial company in China to be the basis of an ETF.

Contact Heather Bell at [email protected]

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