Investors’ attention has been firmly focused on artificial intelligence (AI) this year as it continues to drive US equity returns, but one other theme has shot the lights out in 2023.
Even while the Nasdaq 100 has soared 51% this year, as at 13 December – fuelled by the ‘magnificent seven’ – it remains a long way off the triple-digit returns posted by three blockchain ETFs.
While they have been buoyed by first a slowing down and then a pausing of Federal Reserve interest rate hikes, the theme has been able to streak ahead owing to its strong correlation to cryptocurrencies.
Leading the way is the VanEck Crypto and Blockchain Innovators UCITS ETF (DAPP) which has returned an impressive 182.5% this year.
Tracking just 20 stocks in the MVIS Global Digital Assets Equity index, DAPP’s top three holdings, MicroStrategy, Coinbase and Northern Data have skyrocketed 301%, 317% and 341%, respectively, year to date.
Highlighting its correlation to crypto, bitcoin has risen 143% over the same period. The previous 12 months saw bitcoin fall over 60% while DAPP declined 86%.
While BKCH has marginally underperformed DAPP, it has a similar concentration of stocks, tracking 21 companies.
Meanwhile, BKLC is slightly more diversified in the sector, tracking the NYSE FactSet Global Blockchain Technologies Capped index it invests in a basket of 44 stocks.
Investors should be wary that not all blockchain ETFs have performed in such a manner.
For example, the Invesco CoinShares Global Blockchain UCIS ETF (BCHS) – the largest in the sector with $551m assets under management – has seen comparatively modest returns of 33% in 2023.
This is due to the ETF's lower correlation to crypto, as it instead looks to capture companies that “participate or have the potential to participate” in blockchain applications within or outside of digital assets.
While its top 10 holdings include similar names such as Coinbase and MicroStrategy, it also tracks broader tech plays such as Taiwan Semiconductor Manufacturing Company and Samsung Electronics.