Four blockchain-focused exchange-traded funds debuted with much fanfare within a two-week span in January, but it has since been quiet on the blockchain front until Wednesday’s launch of the Rex BKCM ETF (BKC). The fund, which invests in companies involved with cryptocurrencies and blockchain technology, is a collaboration between exchange-traded product provider Rex Shares and Brian Kelly, a portfolio manager and CNBC Fast Money correspondent.
Kelly is founder and CEO of BKCM Funds LLC, an investment firm focused on digital currencies and blockchain technology that was established in 2013. Kelly is the lead portfolio manager of the actively managed BKC fund, and his experience in this space is promoted as a selling point that differentiates BKC from existing blockchain-focused ETFs on the market.
Kelly and his fund will need to deliver the goods because BKC’s expense ratio of 0.88 percent is greater by a healthy amount versus the existing four blockchain ETFs, which have expense ratios ranging from 0.65 percent to 0.70 percent.
Three of those ETFs are index-based. The lone actively managed fund is the Amplify Transformational Data Sharing ETF (BLOK) from Amplify Investments. That fund has two subadvisors, including Toroso Investments. Toroso’s chief investment officer and BLOK co-portfolio manager Mike Venuto says his blockchain bona fides are that he has been investing in this space for private clients since 2016.
The existing blockchain ETFs are heavy with familiar tech—and sometimes financial—companies that, on the surface, don’t seem overtly connected to blockchain. But they offer some type of product or service to enable the growth of blockchain, an emerging technology that proponents claim will become a disruptive, multi-trillion-dollar movement that will transform the global economy.
Still, some investors have questioned just how much blockchain is actually in these blockchain ETFs. An argument has been made that given the plethora of big tech names in these funds—such as IBM, Intel, Microsoft and others—it would be cheaper to invest in those names via one of the large, tech sector-focused ETFs that charge 15 basis points or less.
BKC invests across the so-called blockchain ecosystem in what fund literature describes as “Wall Street disruptors” (i.e., securities trading platforms and companies disintermediating venture capital), crypto miners and traders, enterprise blockchain leaders and “decentralized internet builders.”
The fund has 32 holdings, and there are less big-name tech stocks among its top 10 holdings versus the other blockchain ETFs. Taiwan Semiconductor and Overstock.com are among five stocks at the top of the list that each have 8 percent stakes, and Square (3.1 percent) is the only other name in the top 10 that most mainstream investors would likely recognize.
In that vein, the percentage of BKC’s holdings that overlap those in BLOK is 61 percent, according to ETF Research Center. The overlap is 52 percent with the Reality Shares Nasdaq NexGen Economy ETF (BLCN), and 39 percent each with the First Trust Indxx Innovative Transaction & Process ETF (LEGR) and Innovation Shares NextGen Protocol ETF (KOIN).
Blockchain has generated much hype as the latest greatest thing, and investors rushed into BLOK and BLCN when they coincidentally launched on the same day in January. BLOK has assets of $181 million versus $127 million for BLCN. The fervor for blockchain ETFs subsided after they launched, and the two funds that debuted later in January have been greeted with decent but more muted response—LEGR has AUM of $40 million and KOIN is at $13 million.