News 
Market Data 
Discover
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
BLCN ETF: The Deep Dive
Jan. 24, 2018
Grenadier
Summary
This is a follow-up on from my Blockchain ETFs Deep Dive.
In-depth analysis on BLCN's investment strategies, fund details and holdings.
A proper comparison with BLOK.
Last week I wrote about the two new ETF developments in “blockchain land” focusing on Amplify Transformational Data Sharing ETF (BLOK) and the Reality Shares Nasdaq Nexgen Economy ETF (BLCN). I have completed the analysis on BLOK in an article you can read here; but I was not able to complete the analysis on BLCN due to a lot of difficulties in getting the information from their website (for which I apologize). Now with reader help I have managed to resolve this, and it is only fair to give you an article on BLCN.
So let’s get started, shall we? All information in this article was sourced from Reality Shares website.
Basic Details:
Launch Date: January 17, 2018.
Expense Ratio: 0.68%.
Shares outstanding: 875,001.
Net assets: $21,306,739.
Number of Holdings: 59 at present up to a maximum of 100.
Daily Volume: 864,779.
Dividends: reinvested into the fund and not distributed.
Looking at the basic information gives me a few insights to share. First of all, like BLOK the fund is tiny which makes sense for a fund just starting out - however this might mean liquidity issues later on. Right now, 800K shares have changed hands on average over the past few days. This is pretty much equal to the entire float of shares, however this turnover volume is not as high as it was with BLOK. On the expense ratio side, the fees do look high compared to other technology ETFs but they are in line with those of BLOK (until 2019 when the fee on BLOK goes up). Due to the global nature of this fund and the need to develop an index I can see why the fee is high.
Prospectus / Investment Strategies:
According to the prospectus this is a passively managed ETF, yet they do create their own index to passively track in partnership with Nasdaq:
“The Index was developed through a partnership between Reality Shares, Inc. (“Reality Shares”), the parent company of Reality Shares Advisors, LLC (the “Adviser”), the Fund’s investment adviser, and Nasdaq, Inc.”
In composing the index, Reality Shares looks for the following (from the company's relevant SEC filing):
Companies committing material resources to developing, researching, supporting, innovating or utilizing blockchain technology for their proprietary use or for use by others (“Blockchain Companies”)
These blockchain companies are committing material resources to further the use and deployment of blockchain technology to, for example, streamline the distribution and verification of cross-border payments; more efficiently store and secure cloud-based digital data; facilitate trusted transactions based on data security and privacy; and mitigate risk in supply chain management, among other uses.
The index universe of “Blockchain Companies” is identified based on research and analysis conducted by the Index Providers. The Index universe is then narrowed to include only those Blockchain Companies with market capitalizations greater than $200 million, the shares of which are exchange-traded and have a six-month average daily trading volume greater than $1,000,000 as of the Index’s reconstitution date.
The remaining Blockchain Companies are then ranked to determine the leading Blockchain Companies as measured by their Blockchain Score™ which is a proprietary ranking system developed by the Index Providers designed to identify those Blockchain Companies expected to benefit most (e.g., from increased economic profit, operational efficiencies or transformational business practices) from the innovation, adoption, deployment and commercialization of blockchain technology.
The 50 to 100 leading Blockchain Companies with the highest Blockchain Scores™ are then selected as the Index constituents. Constituents are weighted in the Index based on their Blockchain Scores™, with Blockchain Companies having higher Blockchain Scores™ weighted more heavily. The Index is reconstituted semi annually in March and September
That last point is key as it notes that Reality Shares is actively creating the index which according to the prospectus is owned and published by them. Nasdaq is involved in calculating and administering the index but they are not involved in determining what is inside the index. I interpret this to mean that this is really an active fund. You have the same ETF provider creating the index and then tracking to it. This explains why the fee is higher compared to more “traditional” passive ETFs. The prospectus does not deliver detail on how this index is created and notes that it is “proprietary” and based on a "blockchain score". For that information I had to look at Reality Shares Advisors website for details.
The blockchain score is created via a five step process in order to determine what companies are included in the fund and to which level of weighting as well. I will summarize the steps here so you can see what is going on under the hood.
Step 1 is about determining the universe of stocks to be picked from based on publicly traded companies selected from across the globe based on multiple sources, including industry associations, journal posts, data searches, news articles, filings (including for patents) and the like. This universe is generated from third-party data vendors to ensure good standing, data transparency, and that all potential constituents are related to blockchain.
Step 2 is concerned with tradability criteria and matches found in the prospectus in that each company has to have a market cap of at least $200 million, have a greater average daily volume greater than $1 million and be listed on a regulated exchange.
Step 3 is concerned with calculating the blockchain score which is the key part of this five step process. Each potential firm from the universe calculated in step 1 is then subject to a 7 factor test:
Role in Blockchain Ecosystem: Scores are awarded commensurate with their level of active effort in the blockchain economy, categorized as one of the following: investor; adopter; advisor; supplier; and developer.
Blockchain Product Stage: Scores are assigned based on their stage of blockchain product development or utilization, categorized as one of the following: planning stage; testing stage; and growth stage.
Blockchain Economic Impact: Scores are awarded based on the expected economic impact of their blockchain utilization/involvement, categorized as one of the following: cost reduction; revenue maximization; and improved productivity.
Blockchain Institute Membership: Scores are assigned based on membership in blockchain institutes and consortiums (including Hyperledger, R3, and the Enterprise Ethereum Alliance).
Research & Development Expenditure: Scores are awarded based on the level of R&D expenditure as a percentage of total revenue.
Filings: Scores are awarded based on the number of public filings and announcements made in reference to blockchain technology.
Innovations: Scores are awarded based on their level of blockchain innovation, including the number of patent applications related to blockchain development.
The scores are summed up and based on other methodology rules not explained in the documentation and then we move on to step 4 where these scores are applied.
Step 4 is where the companies to be included in the index are those with a blockchain score equal to or greater than 50.
Step 5 involves calculating how much weight each company will have (not more than 15%) according to a set of formulas.
As with BLOK, I have covered the prospectus and investment methodology in quite some depth because I feel that since this area is so new and since this is really an actively managed ETF we investors need to know what we are buying into more so than with a traditional passive ETF.
Holdings:
Now let’s look at what BLCN actually contains. At present there are 59 holdings in total. Now in terms of holdings there are two different top ten lists, the first is what other readers have found:
Source: Reality Shares
This appears to be an early “draft” set of holdings that they may have considered at one point in time. I have gone with the "daily holdings" as provided on their website which will form the basis of my analysis below.
The largest holding weighs in at 2.72% of the ETF and the smallest coming in at just over one percent. Less than a quarter of the fund is held within the top 10 compared to BLOK with 46% of the ETF held across the top 10 companies. BLCN has the lowest top 10 holding percentage I have seen as most ETFs have 35%+ in top ten.
Rank:
Holding:
Ticker:
Holding %:
1
Overstock.com Inc
OSTK
2.72%
2
International Business Machines
IBM
2.32%
3
Cisco Systems Inc
CSCO
2.28%
4
Hitachi Ltd
OTCPK:HTHIY
2.26%
5
Intel Corp
INTC
2.21%
6
SBI Holdings Inc/Japan
OTC:DLGEF
2.18%
7
Microsoft Corp
MSFT
2.14%
8
NVIDIA Corp
NVDA
2.08%
9
Advanced Micro Devices Inc
AMD
2.06%
10
Texas Instruments Inc
TXN
2.02%
Total Top 10:
22.26%
Source: Author
Looking at the top 10 in comparison to BLOK there is some overlap. In the top ten we have 4 companies that overlap most notably with Overstock which is the largest and second largest holding in both ETFs due to their work on a property registry based on blockchain. IBM is present in both ETFs probably due to IBM Blockchain platform offering amongst other things. Finally rounding out the top ten overlap are SBI Holdings in Japan which owns 10% of Ripple (the company, not the XRP token) - the one blockchain-related technology firm that has a lot of buy-in from the financial world with their xCurrent platform - and Nvidia (NVDA), which like with BLOK is a pure profit play on cryptocurrency mining.
There are three names in the top ten not present in BLOK at all; Cisco Systems with their IoT protocol initiative, Hitachi with their research into blockchain business models and Texas Instruments.
Looking at the next 20 holdings:
Rank:
Holding:
Ticker:
Holding %:
11
SAP SE
SAP
2.01%
12
Barclays PLC
BCS
1.99%
13
ZTE Corp
OTCPK:ZTCOF
1.98%
14
Hive Blockchain Technologies L
OTCPK:HVBTF
1.96%
15
GFT Technologies SE
ETR:GFT
1.90%
16
Deutsche Boerse AG
ETR:DB1
1.90%
17
Infosys Ltd
INFY
1.89%
18
Broadridge Financial Solutions
BR
1.88%
19
Oracle Corp
ORCL
1.87%
20
Thomson Reuters Corp
TRI
1.87%
Total Top 11-20:
19.25%
Within the next 10 there are some other overlaps between BLCN and BLOK with 6 overlapping holdings but of more interest are the 4 that do not appear in BLOK at all. There are Barclays PLC and ZTE Corp with their blockchain based credentials platform, and GFT Technologies and the Deutsche Boerse with their blockchain cash transfer concept that they are working on.
The top 20 BLCN holdings make up about 41.5% of the fund as opposed to 74% for BLOK, making BLOK far more concentrated.
In the remaining 39 holdings there are some major overlaps. These include financial institutions like Goldman Sachs (GS), Citigroup (C), State Street (STT), Broadridge Financial Solutions (BR) and Banco Santander (SAN). Payment services Visa (V) and Mastercard (MA) are also included. I have detailed what these companies are doing in the blockchain space in the article on BLOK. However there are 26 BLCM holdings that are not in BLOK, and these are the ones I want to focus on in order to give you some color. There is quite a strong set of Japanese firms, among them Fujitsu (OTCPK:FJTSY), NTT Data Corp (NTTY), NEC Corp (OTC:NIPNF) and Panasonic (OTCPK:PCRFY). NTT is notably involved in a trial blockchain for cross border trade with Mitsubishi UFJ Financial Group (MTU) and Fujitsu with their blockchain security technology. There is also a nice selection of Chinese names such as: Alibaba (BABA) with their efforts in creating better supply chains, BOC Hong Kong Holdings (HKG: 2388), NetEase (NTES) and Tencent Holdings (OTCPK:TCEHY) with the blockchain platform that they are building. BLCN is more global than BLOK, containing a lot of major global players in the space, including Siemens (SEI) with their investments in a blockchain based smart grid; Daimler AG (OTC:DDAIY), representing Europe; and the Toronto Dominion Bank (TD) from Canada with their involvement in a blockchain powered digital identity network developed by SecureKey in partnership with IBM. SecureKey is a private company and thus would not qualify for inclusion in this ETF.
As with BLOK I am pleased to see that there are no “junk” companies that simply added in “blockchain” to their name like RIOT Blockchain (RIOT) and Long Blockchain Corp (LBCC). Kodak (KODK) is “missing” in BLCN, which is good because as I noted in the article on BLOK, I did not think it worth including in an ETF.
All in all, now that I have been able to really dig into this ETF after a “trying effort” to get the information, I find that the holdings seem to match very well with the prospectus and the goals of the fund. You are getting a lot of exposure to global firms (more than half of the ETF is outside North America) involved in the blockchain and more of them than with BLOK, and at a slightly lower fee.
As with BLOK, this is not just a technology ETF (it is worth noting that retail focused firms like Tencent and Alibaba are classed as “information technology”) and has a strong financial component. This, again, represents the prevailing thought that the blockchain is supposed to change the very way we do business in the financial world.
In terms of blockchain investment vehicles, I have found BLCN to actually be a solid investment offering and yes, I might even have to admit that it is superior to BLOK (now that a proper analysis has been completed). With BLCN you have less concentration in the top 20 and more holdings, and thus more “bets” on potential winner. It is more globally diverse and is slightly cheaper.
As in my article on BLOK, I will caution readers that there will probably be more of these types of ETFs coming out soon as the space develops. I will be there to write more articles on these developments as well but as always, do your own diligence. Thank you for reading.
https://seekingalpha.com/article/4139686-blcn-etf-deep-dive?auth_param=f4h1u:1d6h70a:83d92bbfd20b6be8183cd9b65f50beed&uprof=54
REALITY SHARES BLOCKCHAIN ADVISORY BOARD
Erik Voorhees
Shapeshift AG
Erik founded ShapeShift AG in August 2014 as an elegant, secure, and fast solution to digital asset exchanges. He is among the top-recognized serial Bitcoin advocates and considers Bitcoin as one of the most important inventions ever created by humanity.
Garrick Hileman
University of Cambridge
Dr. Hileman is a Research Fellow at the University of Cambridge and a researcher at the Centre for Macroeconomics at the London School of Economics. Garrick is best known for his research on cryptocurrencies and distributed ledger technology.
Jeff Garzik
Bloq
Jeff is a futurist, entrepreneur and software engineer. Jeff is co-founder and CEO of Bloq. Jeff serves on the board of Coin Center, and the advisory board of BitFury, BitPay, Chain.com, Netki and WayPaver Labs technology.
Matthew Roszak
Tally Capital
Matthew is a founding partner of Tally Capital, a private investment firm focused on digital assets and blockchain-enabled technology with a portfolio of over 20 investments. He is also the co-founder and chairman of Bloq.
Steve Beauregard
GoCoin
Founder and former CEO of leading blockchain payment processor GoCoin, Steve recently joined Bloq as Chief Revenue Officer to bring distributed blockchain financial products to large enterprise customers and government agencies worldwide.
Derin Cag
Richtopia
Derin is the founder of Richtopia and co-founder of Marketing Runners, Blockrox and Blockchain Age. Richtopia’s mission is to enrich lives using innovative information, with an ultimate vision in alignment with the UNDP’s Sustainable Development Goals.
http://www.realitysharesadvisors.com/indexes/blockchain-index/
BLCN,..totally top level seasoned individuals in their respective sectors,...
"Our team has decades of experience on the front lines with investors, building and growing pioneering practices at leading Wall Street firms to deliver innovative research and analytics approaches directed towards finding real returns."
ERIC R. ERVIN, CO-FOUNDER, PRESIDENT, CEO
Eric Ervin is the President and CEO of Reality Shares, a firm solely focused on the power of dividend growth investing. Eric launched Reality Shares in 2012 with the goal of providing investors an alternative range of indices, quantitative tools and rules-based ETFs helping investors and advisors analyze and access institutional-quality dividend investment strategies. Ervin wanted to come up with a better way to package and deliver dividend growth investment solutions to investors of all sizes. By bringing a unique forward-looking approach to dividend analysis and investment, Eric led the launch of investment analytics tools such as DIVCON, a dividend health analysis system, and the Guard Indicator, a directional market indicator to help investors and advisors. These tools were designed to help investors access the power of dividend growth, as well as providing alternative dividend investment solutions to manage risk.
Prior to the inception of Reality Shares, Eric served 14 years as a Certified Financial Planner practitioner and a Chartered Financial Consultant at Morgan Stanley where he built the Ervin Miller Group, a highly-recognized wealth management franchise. He also worked at Citigroup, Smith Barney, and Morgan Stanley across a number of wealth management roles.
Eric has been featured in the Wall Street Journal, New York Times, Barron’s, CNBC, Bloomberg and other media outlets. He is a Registered Representative of ALPS Distributors, Inc.
RYAN BALLANTYNE, EXECUTIVE VICE PRESIDENT, SALES AND TRADING
Ryan Ballantyne is charged with engaging hedge funds, mutual funds and the brokerage community in the adoption of Reality Shares’ products for implementation in their trading, hedging and investment strategies. He is also actively involved in the development of new products in collaboration with the Reality Shares’ management team.
A proven leader in the financial industry, Mr. Ballantyne has more than two decades of financial industry experience, particularly in building and expanding the success of several Wall Street trading firms. His tenure includes serving as Managing Director at Miller Tabak + Co., LLC, where he was an active cash and derivative sales trader and oversaw a team of sales traders and related personnel. Prior to joining Miller Tabak + Co., he spent five years with Susquehanna International Group, opening the company’s Boston institutional office.
Mr. Ballantyne began his career in 1993 in the Equity Capital Markets Division of Smith Barney in New York. He holds a BA degree in Economics from St. Lawrence University and an MBA from San Diego State University. Ryan Ballantyne is a Registered Representative of ALPS Distributors, Inc.
TOM TRIVELLA, CHIEF OPERATING OFFICER
Tom Trivella brings more than 30 years of financial industry leadership experience in start-up business development, management, finance, operations, and administration with several East Coast institutional brokers to the Reality Shares team.
Primarily focused on US Equities, Mr. Trivella has managed various sales, trading, research, financial, risk management and operational functions throughout his career, and within his most recent positions as Chief Operating Officer at the institutional brokers Citadel Securities, LLC and ICAP, PLC. Prior to these two positions, Mr. Trivella served as an independent business management consultant servicing several large clients on business development, risk management, and equity operations. Mr. Trivella began his professional financial services career at Salomon Brothers, rising to the position of COO for the US Equity business, prior to moving on to Credit Suisse Group where he served as a Director of Global Research e-Business Management where he created and managed a comprehensive e-business strategy for the Global Equity Research Division.
Mr. Trivella holds a BA degree in Economics from Fairfield University, an MBA in Finance from Pace University, and multiple FINRA securities registrations. Tom Trivella is a Registered Representative of ALPS Distributors, Inc.
BOB DOCHTERMAN, CIMA®, EXECUTIVE VICE PRESIDENT
Bob Dochterman helps lead commercial operations for Reality Shares, including marketing, sales, distribution and business development. Mr. Dochterman brings more than 25 years of financial industry leadership experience to the firm, including a deep understanding of the unique needs of institutional investors, financial advisors, intermediaries and other market participants.
Mr. Dochterman joined Reality Shares from Wealthcare Consultants, a sales, marketing and strategy consulting firm focused on the financial industry, where he was President. Before that he spent more than 10 years at Hotchkis and Wiley Capital Management, where he was Chief Marketing Officer responsible for sales, marketing and relationship management for their retail and institutional businesses. He also has served as a Managing Director and Western Division Sales Manager for Merrill Lynch Investment Managers and in similar sales and distribution roles for Salomon Brothers and John Nuveen & Co. Mr. Dochterman earned a B.A. degree in economics from the University of Illinois and an M.B.A. from the University of California at Irvine. Bob Dochterman is a Registered Representative of ALPS Distributors, Inc.
Forget Bitcoin; Blockchain ETFs Are Here, And They're Not As Alike As You'd Think
Jan. 19, 2018
Dave Dierking, CFA
Summary
- A pair of blockchain ETFs debuted on Wednesday.
- Both funds will focus on companies that either invest in, develop or profit from blockchain technology.
- BLOK is actively managed and BLCN is passively managed, but that's far from the biggest difference between the two.
- There's only 61% overlap between the two funds currently.
The funds have notable differences in small cap and international exposure, as well as methodologies for selecting names.
Bitcoin ETFs have gotten the thumbs down from SEC regulators, but ETFs based on their underlying technology are alive and well. Two brand new blockchain ETFs - the Amplify Transformational Data Sharing ETF (BLOK) and the Reality Shares Nasdaq NextGen Economy ETF (BLCN) - both debuted this week amid a lot of hype, a fair amount of concern from the SEC and some questions surrounding exactly how the two funds are different.
You’ll notice right off the bat that neither fund has the word “blockchain” in its name. That’s not by accident, as the SEC came in at the last minute and asked both providers to rename their funds or risk delaying their launch. The SEC’s concern is understandable. In recent weeks, we’ve seen a number of companies make strategic 180 degree turns, add “Blockchain” to their name and see their stock prices skyrocket by several hundred percent. The SEC’s primary concern is that investors are going to invest in a product they don’t really know much about just because it has “Blockchain” in the name, and put themselves at substantial risk of losses. The other concern is that these funds aren’t pure blockchain plays. Both of these funds have names, such as Intel (INTC), JPMorgan Chase (JPM) and Microsoft (MSFT), in their portfolios. While these companies are indeed developing blockchain-related technology, it’s a very small part of their overall business model at the current moment. That being said, the two funds are still being warmly received by investors. Combined, the two funds are going to near $40 million in shares traded on their opening day, and well over that on their second.
At first blush, it might seem like the biggest differentiator between the two funds is that BLOK is actively managed and BLCN is a passive index fund. While that’s true, the two portfolios are actually quite different and they go about selecting names for them in distinct ways. According to Bloomberg, the two funds only have 61% overlap in assets, and both have their individual sources of risk. BLCN has a much larger percentage of assets dedicated to overseas companies, while BLOK has much more invested in small caps.
To better understand how these two blockchain ETFs compare and contrast, let’s break down each one.
Reality Shares NexGen Economy ETF (BLCN)
BLCN is benchmarked to the Reality Shares NexGen Economy Index, an index that selects and weights companies according to its proprietary Blockchain Score. In short, the index looks to include only those companies which have made a meaningful investment and commitment to blockchain technology development, and avoid those companies which have made radical strategic pivots to blockchain, but have yet to really commit to the space.
The Blockchain Score is developed by looking at seven distinct factors. Some of these factors include the number of blockchain-related patents or corporate filings issued by companies, the presence in the blockchain community through institute memberships, such as the Ethereum Enterprise Alliance, and the overall potential impact to the blockchain economy. In other words, you won’t (yet) find names, such as Riot Blockchain (RIOT), Kodak (KODK) or Long Blockchain (LBCC), anywhere in this portfolio.
Look at the composition, though, and one trend remains clear.
Investors hoping for a pure blockchain play are going to be very disappointed. BLCN reads a lot like a large cap tech ETF with some more focused blockchain businesses thrown in. Granted, each of these mega-techs is making meaningful investments into blockchain, but how much is that really going to impact the company’s bottom line?
Amplify Transformational Data Sharing ETF (BLOK)
As mentioned, BLOK is actively managed and, as such, may be better positioned to react to rapid developments in the space. In pursuing its investment strategy, the fund’s portfolio managers seek investments in companies across a wide variety of industries that are leading in the research, development, utilization and funding of transformational data sharing technologies. Their involvement in blockchain is defined as:
actively engaging in the research and development, proof-of-concept testing, and/or implementation of transformational data sharing technology.
profiting from the demand for transformational data sharing applications such as transaction data, cryptocurrency and supply chain data.
partnering with and/or directly investing in companies that are actively engaged in the development and/or use of transformational data sharing technology.
acting as a member of multiple consortiums or groups dedicated to the exploration of transformational data sharing technology use.
In this sense, the methodology of BLOK is similar to that of BLCN, except that it takes a more qualitative, human-involved approach. Despite the relative similarity in approaches, the top 10 of BLOK also looks much different than BLCN’s.
BLOK and BLCN only share five names in their top holdings, and BLOK is much more top-heavy (61% of assets in the top 15 holdings for BLOK, compared to just 32% for BLCN). Given its much larger focus on small caps, BLOK could have a bit more “boom or bust” potential. These companies can be more quickly and deeply affected by advances in blockchain, which could be either good or bad depending on how successful they are at blockchain development.
Conclusion
The SEC demanded that these two ETFs remove the word “blockchain” from their names, but investors appear to be having little trouble finding them. The two funds combined are poised to pass $100 million in trading volume on just their second, putting them ahead of the pace of the recent successful launch of the Marijuana ETF (MJX).
I like that both of these funds have a nice mix of both tech and financials exposure, about 85% of assets total in both funds, with a mix of about ? tech and ? financials. One of the biggest “concerns”, obviously, is that these ETFs are far from pure blockchain plays. Scanning through the holdings of each fund, I’d estimate that only about 10% of assets are near-pure blockchain plays. Currently, these funds are more large-cap tech and financials ETFs, but there’s a lot of blockchain-related growth potential here.
These funds are probably headed towards billion-dollar status at some point in the relatively near future. Even though BLOK is looking like the very early leader in the race between the two (it’s trading at about double the volume of BLCN), I like BLCN in the long term given it’s passive nature, its slightly lower expense ratio (it’s a very minor difference, but even small differences in expense ratios have shown to be big drivers in net flows) and more quantitative approach to stock selection. Given the current buzz around blockchain and cryptocurrencies, both of these funds have the look of successful launches.
|
Followers
|
8
|
Posters
|
|
|
Posts (Today)
|
0
|
Posts (Total)
|
16
|
|
Created
|
01/17/18
|
Type
|
Free
|
| Moderators | |||
