Coinbase Lands In ETFs On Day 1

April 16, 2021

ETFs aren’t typically the vehicle of choice for folks looking for exposure specifically to a single stock. If you want to jump into Coinbase’s debut as a public traded entity, buying shares of Coinbase itself is probably just right for you. End of story.

But ETFs are an excellent choice for anyone who’s looking for diversified access to a part of the market, even if that part can seem like a very narrow segment or theme.

As eyes focus on Coinbase and its splashy IPO this week, you may be looking to access this newly listed crypto exchange through an ETF because you’re, say:

  • Bullish on crypto assets in general
  • Or you like investing in exchanges and capital markets broadly as an investment theme
  • Or because betting on IPOs is your thing but you want to minimize single-stock risk

In any of these cases, Coinbase may be a stock you seek, but it’s not the whole story, and for that, there’s usually an ETF for you.

The question, then, is finding that specific stock in ETFs. Ordinarily, you could check out our free-to-use ETF Stock Finder Tool, type in Coinbase’s ticker on the search tab—“COIN”—and see a complete list of ETFs that own that stock with their respective allocation sizes.

But COIN is a brand new stock, and unfortunately, it can take a few days for that listing information to trickle down to various databases, ours included. (ETF.com data is fueled by FactSet.) So, until that information is available, we did some digging for you.

On day one of Coinbase’s IPO, there were already five ETFs that offered direct access to the stock, according to Bloomberg data. This list should grow every day as other funds add the stock to their mix, but these funds were first movers earlier this week. They are:

ARK Lineup

It’s not surprising to see three ARK funds already allocated to Coinbase. If you’ve been following Cathie Wood’s high-conviction active management style, her ARK ETFs are often ahead of the curve.

ARK was ahead of the pack when it first offered access to bitcoin—through Grayscale Bitcoin Trust (GBTC)—well before it was cool to do so, and now it’s the first to jump into Coinbase.

On day 1 of the IPO, ARK scooped up almost 750,000 shares of the crypto exchange for its ETFs. ARKK, which invests in companies that are involved with or benefit from disruptive innovation, added some 512,000 shares of Coinbase on IPO day 1, which translates into COIN representing about 0.68% of the overall portfolio allocation. According to ARK’s website, COIN is now ARKK’s 44th-largest holding out of 55.

ARKW, which owns companies linked to cloud and internet-related technology disruption, currently owns some 147,000 shares of Coinbase, representing about 0.68% of the portfolio—one of the fund’s smaller allocations. And ARKF, which focuses on what’s next in financials, owns about 89,000 shares, also representing about 0.68% of the overall portfolio mix.  

Clearly, ARK—as an active manager—is expressing its conviction in the crypto asset story with this portfolio addition across its lineup, but it’s also doing so in a measured way, having Coinbase land toward the bottom of its ETFs for now.

Blockchain ETF Jumps In

BLOK, an actively managed portfolio of companies that are either developing blockchain, implementing it or supporting this technology, quickly added Coinbase to its portfolio. The fund acquired about 50,000 shares of the crypto exchange, landing COIN roughly in the middle of its 53-holding pack with about a 1.2% weighting.  

The addition isn’t surprising given that BLOK is the only blockchain ETF to offer direct access to bitcoin itself through an allocation to GBTC.

IPO ETFs: Yes, And Not Yet

Another way to access a newly minted stock is through IPO ETFs. Within that segment, only FPX jumped into Coinbase immediately. The fund bought about $22 million worth of Coinbase stock following the IPO, allocating about 1.1% of the portfolio to this stock.

What’s noteworthy about that inclusion is that FPX tracks a subindex of a global benchmark that would typically add a new stock to its portfolio six days after the original IPO, and hold it for 1,000 days. The subindex FPX tracks rebalances quarterly, so additions and purges happen in the ETF at the closest rebalance date to that of the global index.

But the index methodology has a section on “special cases,” where rules allow the index provider to make a judgment call on IPOs that are significant in “size and scope.” That latitude in the methodology is why Coinbase—a massive IPO—found its way into FPX almost immediately.

Consider that another IPO ETF, the Renaissance IPO ETF (IPO), has yet to add Coinbase to its mix even though the fund, too, sets out to capture the newest stocks in the market.

Delayed Entry

IPO (the ETF) tracks an index that adds newly listed stocks within 90 days of their public offering and holds them for two years. Bigger listings—Coinbase probably fits that description here—can also be fast-tracked into the index/ETF, according to the methodology, but that means additions taking place one week after the initial offering. Coinbase would probably enter the mix mid-next week.

These two ETFs—FPX and IPO—are both passive products, which sometimes leads us to assume they are “slow to react” to fast market action, but clearly index methodologies can be surprisingly nimble when needed.

Also interesting in this comparison between these two IPO ETFs is that they have historically delivered very different results because index methodology details matter. 

Inclusion windows, holding periods, sell-dates and the fact that FPX will continue to hold to an IPO stock even if merger/acquisition deals take place while IPO will not all lead to different portfolios and different returns. No two IPO ETFs are created equal.

 

FPX vs IPO

 

Chart courtesy of StockCharts.com

 

As is often the case, there’s no right or wrong approach to capturing an IPO such as Coinbase. Some argue that buying a newly public stock on the first day or two is a recipe for massive volatility, while others say capturing early-days action in big IPOs is where a lot of the opportunity is. Either way, whatever your investment philosophy, there’s an ETF for you.

You can compare side by side ETF portfolios with our ETF Comparison Tool.

Editor's Note: An earlier version of this article omitted BLOK. It's been updated

Contact Cinthia Murphy at [email protected]

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