Investors looking to add digital assets exposure to their portfolios often forget to consider the weighting methodology behind the funds in consideration.
The Invesco Alerian Galaxy Blockchain Users and Decentralized Commerce ETF (BLKC ) and the Invesco Alerian Galaxy Crypto Economy ETF (SATO ) each use an equal-weighting approach, as opposed to a market cap approach, increasing diversification and lowering volatility for investors.
“I think the biggest thing was diluting, to a degree, your exposure to Bitcoin,” Rene Reyna, head of thematic and specialty product strategy, ETFs, and indexed strategies, Invesco, said last week at Exchange: An ETF Experience. “So GBTC, which is a current holding in our ETP sleeve, although it’s currently trading at a discount, is going to generally move in tandem with the Bitcoin marketplace. Same thing with your miners.”
SATO, which takes a more pure-play approach, offers exposure to cryptocurrency-focused equities, crypto ETPs, and trusts. The first sleeve in the fund, fixed at 85% of assets, comprises equally weighted stocks of pure-play digital asset companies that are engaged in cryptocurrency and its relative mining, buying, or enabling technologies. Sleeve two — 15% allocation — consists of an ETP and private trust component, which may only hold GBTC.
Reyna said that for a pure-play approach like SATO, performance will generally move in line with the cryptocurrency marketplace.
“When we look at not only the back testing of the index, but also live performance since inception in October we see it play out that way, where the portfolios were moving in line with the cryptocurrency marketplace,” Reyna said. “The pure plays tended to be highly correlated. So you got that closer track.”
Reyna added that in terms of performance, in many cases, SATO has seen 90%–100% capture of bitcoin returns, whereas Invesco’s other offering, BLKC, which uses an equal-weight approach and includes blockchain users, may see 70%–80% of upside capture.
“[BLKC] was really a way to provide investors with the opportunity for these blockchain users for non crypto purposes to have the same contributions to a portfolio as your Bitcoin miners,” Reyna said, which was part of the reason why the firm thought that equal weighting was the optimal structure for the funds.
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