Comparing 4 Blockchain ETFs

February 16, 2018

Reality Shares Nasdaq NexGen Economy ETF (BLCN)

Launched: Jan. 17, 2018

Expense ratio: 0.68%

AUM: $104 million

BLCN is an index-based strategy that owns companies that are likely to see blockchain-related growth. It tracks the Reality Shares Nasdaq Blockchain Economy Index. The methodology uses what the company calls the Blockchain Score to hone in on companies that either will benefit the most from blockchain technology or those that are “developing the underlying technologies behind blockchain innovation,” according to Reality Shares.

More granularly, the Blockchain Score consists of quantitative factors that ultimately assess how developed a company’s blockchain technology is, how much it spends on developing it, how innovative it is, and how economically significant or crucial that company is in the overall blockchain segment.

What’s unique about BLCN’s index-based approach is that even though the methodology is rules-based, the index committee has wide discretion in determining which companies are eligible for inclusion.

The 59-stock portfolio is global in scope and diverse across industries. Here’s a portfolio breakdown, courtesy of Reality Shares:


Source: Reality Shares


Innovation Shares NextGen Protocol ETF (KOIN)

Launched: Jan. 30, 2018

Expense ratio: 0.65%

AUM: $4.8 million

KOIN is index-based with a twist: The index uses artificial intelligence (AI) to pick stocks. The reliance on AI speaks to the challenge of identifying a theme in a company’s balance sheet. According to Innovation Shares, to invest in blockchain as a theme requires something other than a traditional, fundamentals approach based on a company’s financials.

Specifically, the “natural language process algorithm,” or the AI element to this, identifies stocks globally that have a relationship with the blockchain through certain keywords. The algorithm reads stories from the media and uncovers stocks that have an association with these keywords.

It then generates a sentiment score to establish how strong the relationship is between that company and the theme. In a way, it’s a strategy that relies on the collective wisdom of the media.

The stocks are then put into four stakeholder categories: cryptocurrency/payment; mining enablers; solution providers; and adopters. Each category can’t represent more than 40% of the index, and individual stock weighting is capped at 7%.

The end mix of 42 securities is sector diverse—it includes names like Amazon, Visa and Tencent, but also the likes of shipping company Maersk, UPS, FedEx, Sprint and Dish Network. The mix reconstitutes twice a year.

“Blockchain, like other themes, is a multidecade theme,” said Innovation Shares’ Managing Director Matt Markiewicz. “You invest in themes, you don’t trade them. Themes take a while to play out.”

Here’s a look at the portfolio:




Source: Innovation Shares


For a larger view, please click on the image above.


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