Defiance Rolls Out First NFT ETF
The new fund seeks to capture the performance of a burgeoning corner of the metaverse.
Today, Defiance ETFs launched the first fund to specifically target the nonfungible token (NFT) space. The Defiance Digital Revolution ETF (NFTZ) tracks the BITA NFT and Blockchain Select Index.
The new fund trades on the NYSE Arca and comes with an expense ratio of 0.65%.
NFTs are basically unique digital assets for which the ownership and authenticity can be verified through the blockchain. Defiance’s website notes that in the first quarter of the year, more than $2 billion was spent on NFTs, a period that includes Twitter founder Jack Dorsey’s sale of his first tweet for $2.9 million.
NFTZ’s prospectus states immediately that it does not invest in cryptocurrencies or derivatives related to cryptocurrencies, though cryptocurrencies are generally used in transactions involving NFTs. Companies included must generate at least half of their revenues from business activities related to the blockchain or cryptocurrencies or offer exposure to the NFT space. The covered categories include crypto asset management and trading companies; crypto banking, payments and services companies; crypto mining companies; crypto mining hardware companies; and blockchain technology companies, according to NFTZ’s prospectus.
The fund’s underlying index is global in nature and requires that eligible companies meet minimum size and liquidity requirements. It rebalances and reconstitutes on a quarterly basis, with companies limited to weightings between 0.5% and 4% of the index. In mid-November, the index included 34 securities, the document says.
Defiance Chief Investment Officer Sylvia Jablonski says that firms like Mattel, Spotify, Reddit and Playboy are all creating their own NFTs. But it’s not just corporations that are dipping their toe in the NFT sea, she notes, but also musicians and artists.
“It's a cultural revolution, because the core values of NFTs are rewarding the creator economy,” Jablonski said, pointing out that since NFTs are basically smart contracts on the blockchain, creators can add in additional terms like royalties.
“It's just a really great way for creators to benefit from sharing their art, their music, but it could be anything,” she added.
On its day of launch, the fund’s top holdings included Silvergate Capital (6.74%), Playboy Group (5.27%) and Cloudflare (5.17%).
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Contact Heather Bell at [email protected]
