Industry Updates

One ETF has returned over 100% this year

The strategy tracks just 20 companies

Jamie Gordon

Unkown question mark

Even as investor allocations remain more cautious, VanEck’s blockchain ETF has shot the lights out with triple-digit returns so far in 2023 owing to its high beta exposure to cryptocurrencies.

The VanEck Crypto and Blockchain Innovators UCITS ETF (DAPP) has returned 109% since the start of the year, as at 18 May, with 14.5% gains this week alone.

The ETF – like others in the debt-laden tech and thematic space – was buoyed by news last December that US core price inflation (CPI) cooled to 6.5%. This prompted the Federal Reserve to begin decreasing the severity of its interest rate hikes, from 0.75% at three meetings last year to 0.25% at its most recent meeting.

The ‘tide that lifts all boats’ echoed across products which ailed by central bank hawkishness in 2022, with ETFs tracking the Nasdaq 100 index rallying 27.4% so far this year.

However, DAPP’s ability to run away from the pack owes to its high beta to the performance of cryptocurrencies, given its basket is concentrated in 20 companies tracked by the MVIS Global Digital Assets Equity index.

These include headline-grabbing names such as Block and Coinbase but also crypto miners including Bitfarms, Riot Blockchain, Marathon Strategy, Hut 8 Mining Corp and Hive Blockchain Technologies.

Like metal mining, crypto mining stocks amplify the returns exposure of the asset they are targeting.

While bitcoin has fallen 11.2% over the 12 months but jumped 62% this year, DAPP has returned -19.1% and 109% over the same periods.

Kamil Sudiyarov, ETF product manager at VanEck, told ETF Stream: “The correlation between the stocks of related companies and the cryptocurrency market is highly positive so DAPP has been a beneficiary of the movements in broad crypto market prices since the start of the year.

“Its outperformance comes down to index construction. We tried to capture companies with very significant revenue exposure to crypto.

“This works both ways – during downturns the declines are much more pronounced but when it is working it is working. Our beta to the market is the highest.”

While some rival products such as the Global X Blockchain UCITS ETF (BKCH) have been hot on DAPP’s tail with 94.8% returns so far in 2023, others such as the Invesco CoinShares Global Blockchain UCITS ETF (BCHN) have lagged with just 13.4% gains.

This owes to BCHN’s lower crypto beta. Instead, the ETF looks to capture companies that “participate or have the potential to participate” in blockchain applications within or outside of crypto, which include those investing in or adjacent to the technology such as South Korean communications firm Kakao, semiconductor firms TSMC and Intel and mining company Rio Tinto. 

The gap between DAPP and BCHN’s return profiles – trending up or down – is a reminder to investors that similar labels on the tin can still result in very different products and there remains little consensus on how to define and capture many investable future themes.

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