Invesco has launched a new ETF – the Invesco Elwood Global Blockchain UCITS ETF – on London Stock Exchange, providing exposure to companies globally that generate, or have the potential to generate, earnings from blockchain technology.
Gary Buxton, Head of EMEA ETFs at Invesco.
The ETF has been developed in partnership with Elwood Asset Management, an investment firm owned by hedge-fund billionaire Alan Howard specializing in providing institutional investors with exposure to digital assets and blockchain technology.
Blockchain is essentially a network of computers that keep transactions secure in a decentralized database, or digital ledger, similar to a shared spreadsheet, that the network can see and must approve before it can be verified and recorded.
Once recorded, no one person can change it without the agreement of others, and it is nearly impossible to tamper with.
Blockchain is the technology that underpins cryptocurrencies, like bitcoin, but it has many more possible uses with the potential to move data of any kind swiftly and securely. A growing number of industries and institutions are looking to embed blockchain technology into their day-to-day processes.
Gary Buxton, Head of EMEA ETFs at Invesco, commented, “Invesco has earned a reputation for being able to identify genuine opportunities with sound investment potential and finding the most suitable ways to bring them to market. We believe the potential for blockchain technology to disrupt the status quo of companies in virtually every industry makes for a strong long-term investment case.”
Bin Ren, CEO of Elwood, added, “Blockchain has been around for a decade, but many people still see it just as the technology behind cryptocurrencies. The true potential, however, may extend far beyond that. We are beginning to see the technology being used by financial services companies in particular, but we expect greater application of blockchain technology across a wide range of industries. We believe the potential for blockchain to change the global economy is greatly underappreciated in today’s market, much like the internet was in the beginning, when most people couldn’t see past its usefulness for email.”
The fund is linked to the Elwood Blockchain Global Equity Index which covers firms from both developed and emerging markets that are aligned with the blockchain ecosystem.
Driven by insights from Elwood, companies are assigned a ‘Blockchain Category Score’ based on a firm’s percentage of corporate value attributable to blockchain technology.
In determining a firm’s score, Elwood examines the company’s involvement in several blockchain-related business areas including cryptocurrency mining hardware and technology operations; energy and token investments; financial services and payment systems; and blockchain technology solutions, consulting, or communication services.
Scores range from 5 (‘core’ blockchain companies with over 50% corporate value attributable to blockchain) to 1 (companies that currently do not conduct any blockchain-related business activities, but have assets, expertise, or technology with blockchain growth potential).
Chris Mellor, Head of EMEA ETF Equity Product Management at Invesco, said, “The potential for blockchain to drive real earnings is huge, but it is often hidden within companies involved in other areas. This ETF offers investors access to companies with real earnings now, but with the added potential of blockchain-related earnings not reflected in their share prices.”
Constituents are selected starting with the highest scores, then progressively including lower-scoring companies until a total of 75 securities is met. Stocks are weighted based on their Blockchain Category Scores, adjusted for liquidity to ensure tradability. The index is reviewed and rebalanced quarterly.
According to Kevin Beardsley, Head of Business Development at Elwood, the index’s design helps it to adapt its exposure along with changes in the blockchain ecosystem: “The majority of the index is currently allocated to companies where the value attributable specifically to blockchain technology is either in the ‘developing’ or ‘potential’ phase. These are companies with assets that are well-positioned to capitalize on the emerging opportunities for blockchain. Over time, however, we would expect the balance to shift naturally to companies with more significant direct exposure to blockchain-related earnings as the technology becomes more ubiquitous.”
Around two-thirds of the total index exposure is allocated to stocks listed in the US (39.9%) and Japan (28.4%) with the next largest country exposures being Taiwan (11.5%), South Korea (7.6%), and Australia (3.6%).
Not surprisingly, the index has a strong sector leaning towards information technology stocks at 45.7%, followed by financials at 22.5%.
The fund comes with a total expense ratio (TER) of 0.65% and is available to trade on the LSE in US dollars or pound sterling under the tickers BCHN LN and BCHS LN respectively.
The first blockchain ETF in Europe was introduced by First Trust in April 2018. The First Trust Indxx Innovative Transaction and Process UCITS ETF (BLOK LN) tracks the Indxx Blockchain Index, providing investors with exposure to companies which actively invest resources into products or services that enable and use blockchain technology. It currently has around $20 million in AUM and also comes with a TER of 0.65%.