The year is still young, but there are already some interesting ETF performance and demand trends in 2021. As February wraps up, we take a look at some of these interesting ETF stories. We'll share them in a short series over the next three days.
First up: blockchain ETFs.
2021 has so far delivered a phenomenal ride for bitcoin investors and enthusiasts alike. That has meant a really good run for blockchain ETFs as well. Blockchain is the technology backbone for cryptocurrency mining, storage and transacting.
Bitcoin prices soared to a high of over $58,000 at one point this year. It has given back some of that gain, but it’s still up more than 540% in the past 12 months. The technology that enables it, blockchain, has gone up too.
None of the blockchain ETFs have benefited more from this spike than the Amplify Transformational Data Sharing ETF (BLOK). BLOK is among the best-performing ETFs so far this year (excluding leverage/inverse funds), with gains of roughly 56% year to date, and 88% in the past three months.
‘BLOK’ Also Holds Bitcoin
BLOK is a really interesting fund. It’s the only actively managed blockchain ETF, and one that also invests in bitcoin via an allocation to Grayscale Bitcoin Trust (GBTC).
The portfolio includes a lot of small- and midcap names directly involved with blockchain—many of which have gone public in the past few years, so they are new and growthy.
The universe here includes crypto miners, exchanges, banks and even blockchain “evangelists,” as portfolio manager Mike Venuto, from Toroso Investments, puts it.
The end result is a blockchain portfolio that has a high 0.70 correlation to bitcoin prices.
In the past 12 months, BLOK has rallied almost 200%, significantly outpacing the U.S. stock market (as measured by SPDR S&P 500 ETF Trust (SPY) and the Invesco QQQ Trust (QQQ), but lagging GBTC, as seen in the chart below. (If you plot BLOK’s performance since inception in 2018, the fund has actually outperformed all three.)
Chart courtesy of StockCharts.com
Active Hand At Play
Behind this best-in-class performance is a so-called pure-play mix of holdings and an active manager’s hand nimbly adjusting allocations in a universe of stocks that’s regularly changing. But let’s qualify what pure play in this space means with the help of portfolio manager Venuto:
- About 20% of BLOK is invested in crypto miners, a segment that has driven a lot of the ETF’s strong returns.
Miners are on the frontlines of the crypto action. And much like we see in gold ETFs, investing in the miners can mean leveragedlike returns relative to the underlying commodity, Venuto says. Bitcoin’s upward move has meant strong momentum for miner stocks.
Some of the names that fit this segment in BLOK include Marathon, Argo, HIVE, Hut 8 and Riot.
(You can look up individual stocks in ETFs with our ETF Stock Finder Tool).
- Transactional companies are a big part of the mix. Names that fit here are those like Voyager Digital, which offers free crypto trading; Silvergate, a financial name that allows transacting in crypto,.
Some of these platforms not only rely on blockchain but in many cases are helping proliferate access to cryptos or tokens in general. This isn’t a play just on bitcoin’s future.
- The portfolio considers SPACs linked to crypto and blockchain, and it definitely owns semiconductors.
BLOK looks for chipmakers specifically linked to the blockchain technology, and invests in companies like Canaan and EBON in this category.
- BLOK invests in blockchain “evangelists,” putting money in the value of lip service.
That’s another way of saying the fund will invest in a company that not only has an investment in a company that has an investment in cryptos and/or blockchain—aka, skin in the game—but one that is also vocal about blockchain use.
One example here is MicroStrategy, a software/cloud firm that, yes, invests a big part of its cash in bitcoin, but its leadership is out there preaching about the future of blockchain and cryptos regularly.
“We don’t own MS just because they own bitcoin, but because they are so vocal about bitcoin being the future,” Venuto said.
That same metric is why BLOK does not invest in Tesla. “We don’t own Tesla, because it’s not about what Elon can do for bitcoin; we’ll own it when it’s about what blockchain can do for Tesla, and we haven’t seen that,” he explained.
(For a larger view, click on the image above)
Blockchain has come a long way from technology innovation in the fringes to mainstream staple of the crypto revolution. Companies across various industries are making big investments in blockchain and bitcoin. BLOK is a high beta play on the space.
The fund has picked up almost $500 million in fresh net assets so far in 2021, and is now a $1.3 billion ETF. The fund costs 0.70% in expense ratio, or $70 per $10,000 invested.
Other blockchain ETFs competing in this segment—all of them index-tracking strategies—include:
- Siren Nasdaq NexGen Economy ETF (BCLN), with $285 million in assets
- First Trust Indxx Innovative Transaction & Process ETF (LEGR), with $71 million
- Capital Link NextGen Protocol ETF (KOIN), with $27 million
(You can compare different ETFs side by side with our free ETF Comparison Tool)
Chart courtesy of StockCharts.com
Cinthia Murphy can be reached at [email protected]