Industry Updates

ETF Wrap: A good time to be a crypto ETP investor in Europe

A fee war and new players in European crypto ETPs, China equity dispersion and the new hot investment theme in ETFs made headlines this week

Jamie Gordon

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While investors remain divided on the merits of crypto assets, there should be little debate around product innovation and a race to bottom in fees being positives for those trying to access the space via exchange-traded products (ETPs).

This week, WisdomTree launched new physically-backed ETPs on mid-cap solana, cardano and polkadot assets with total expense ratios (TER) of 0.95% apiece.

This fee level is just 20 basis points above Europe’s cheapest physical bitcoin ETP while “severely undercutting similar products from 21Shares which charge 2.5%”, said Eric Balchunas, senior ETF analyst at Bloomberg Intelligence.

Balchunas made this observation on the European crypto ETP space and how fee wars are happening within a year of product ‘firsts’ being brought to market while bemoaning the comparatively sluggish pace of regulatory approval of the asset class in the US.

Elsewhere, Brazil-based crypto asset manager Hashdex announced its entry to the European ETP market with the hire of crypto veteran Laurent Kssis, who has held leadership roles at rivals including 21Shares and CoinShares as well as trading roles across several established players.

Interestingly, Hashdex have been active in developing ETPs targeting the coins and tokens underlying particular industries such as decentralised finance (DeFi). This could mean they play a key role in the much-anticipated rise of crypto sector products with their suite of ETPs in Europe.

Finally, in his annual letter to shareholders, BlackRock CEO Larry Fink said his firm had seen increased interest in the space from investors and were “studying digital currencies, stablecoins and the underlying technologies to understand how they can help us serve our clients”.

Perhaps the world’s largest asset manager could be the next big issuer to enter the crypto ETP space in Europe.

Chinese equities are not made equal 

Recent volatility in Chinese equities served as a much-needed reminder that the country’s onshore and offshore equities – and those investing in them – behave very differently.

While all stocks were hit by the news of tightening lockdown restrictions in China, discussions around the potential delisting of American Depository Receipts (ADR) and the subsequent lessening of these concerns saw China offshore equity ETF outflows and inflows spike, respectively.

Philip Wool, managing director of Rayliant, whose flagship product targets Chinese onshore equities, said offshore stocks are far more exposed to salient political risks than A-Shares.

Speaking to ETF Streamlast November, KraneShares CIO Brendan Ahern said mainland China shares were around 95% owned by Chinese investors. However, the share of foreign ownership could increase in 2022, according to JP Morgan.

Digital infrastructure the new hot theme 

Hardly a brand-new theme – first captured in Europe in the Digital Infrastructure and Connectivity UCITS ETF (DIGI) towards the end of 2020 – digital infrastructure has recently seen a rush of attention, with new launches targeting the space from Global X, WisdomTree and First Trust.

Speaking at ETF Stream’sBig Call: Thematic ETFs 2022 event, First Trust senior product specialist Gregg Guerin argued real estate has been a valuable inflation hedge, with dividends in the sector having doubled the rate of inflation over the past 25 years while REITs have returned almost 9% in annualised performance over the last two decades.

However, he argued the role of traditional real estate – such as shopping centres – is ceding ground to new subindustries including cell towers and data centres, with the latter jumping from 0% to 9% of the FTSE EPRA NAREIT index since Amazon’s AWS service launched in 2006.

Supporting this, Matt Brennan, head of passive portfolios at AJ Bell, said in a thematic ETF context, his firm focuses on structural shifts playing out through well-established markets, including smarter infrastructure and digitalisation.

ETF Wrap is a weekly digest of the top stories on ETF Stream

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