At one point, companies completely unrelated to blockchain were changing their names to get in on the hype.
But one security that legitimately merits a “blockchain”-based moniker has declined to adopt one. Amplify Transformational Data Sharing ETF BLOK quietly, though actively, trades in the trend.
Who's In The Fund?
BLOK emerged in mid-January with about 50 global companies, including many small caps, that meet one of three criteria.
“We think leading indicators are the largest investors in blockchain today from a corporate standpoint, the groups that are doing the most research and then companies that are already receiving revenue from blockchain-related activities,” Amplify ETFs CEO Christian Magoon said last week on Benzinga’s PreMarket Prep trading show.
With about 70 percent of the portfolio based in North America and the rest primarily in Europe and Asia, the ETF spans chipmakers to financial institutions to camera manufacturers.
Notable names include Eastman Kodak Company Common New KODK, NVIDIA Corporation NVDA, Taiwan Semiconductor Mfg. Co. Ltd. (ADR) TSM, Overstock.com Inc OSTK, Goldman Sachs Group Inc GS, Citigroup Inc C, Riot Blockchain Inc RIOT and the Tokyo exchange’s Digital Garage, Inc., GMO Internet Inc. and SBI Holdings Inc.
The fund doesn't include energy companies, though, despite their apparent exposure to the power-heavy mining processes. Magoon said none have yet attributed revenue or demand to blockchain-related mining or applications, nor invested in related technology.
How Is It Distinct?
“We think that blockchain space is developing so rapidly that you can’t buy and hold in this area for six months at a time,” he said, noting competitors only buy and sell twice a year. “We had a clean slate and felt like having a manager [who] was looking at this universe on a day-to-day basis — so they could be responsive both to the opportunities on the upside but also the risks on the downside — made a lot of sense.”
Related Link: The BLCN Blockchain ETF Hits $100 Million Milestone
The unique approach means Amplify can take positions immediately while other funds might not be able to buy until reconstituting their portfolio six months later.
“In some ways, maybe there’s a good benefit to having some other index ETF products out there to buy what we already own in the blockchain space,” Magoon said.
Separating The Good Eggs
Active management is also seen to protect Amplify investors from fraud.
“It’s very hard to have a strict rules-based process, an index that you are able to create that is not going to be fooled at some point by many of these different types of models, coins, business lines that are being introduced quite often in blockchain,” Magoon said.
The market is filled with companies alleging blockchain exposure or new ventures merely to capitalize on the hype, and Magoon is attuned to their schemes.
“We think we need to have a human element that actually goes in and looks at the business use case for a company that announces that they’re going to be doing a project in this area."
Magoon's research team scrutinizes technologies and source codes, reads white papers, interviews executives and investigates company partnerships and personnel to identify legitimate blockchain pursuits.
The process helps eliminate companies like Long Blockchain Corp LBCC, with whom “it’s quickly apparent that they’re really using blockchain as a naming tool to improve their market cap position. They really don’t have a business use case.”
Not Just An XLF-XLK Blend
Magoon said the portfolio is not simply a repackaging of Financial Select Sector SPDR Fund XLF and Technology Select Sector SPDR Fund XLK.
“We took a look at it, looked at XLK and XLF, looked at an equal weighting of both of those, and the overlap between that 50-50 XLK-XLF mix versus BLOK was 23 percent in terms of portfolio weighting,” he said. “We think this is an additive portfolio and as companies spin off or IPO, this is going to become more and more unique as a way to play the blockchain ecosphere through the BLOK ETF.”
Watch the full show below, or listen to the podcast here.
PreMarket Prep is a daily trading show hosted by prop trader Dennis Dick and former floor trader Joel Elconin. You can watch PreMarket Prep live every day from 8-9 a.m. ET here. The replay can be found on Benzinga's YouTube channel, and the podcast is on iTunes, Soundcloud and Stitcher.
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