Blockchain is perhaps best known as the technology behind cryptocurrencies like Bitcoin or Ethereum . Yet, as recent research indicates, it is also gaining attention for its much broader uses. And this is attracting investor interest.
According to researchers Karl Wust of ETH Zurich, Switzerland, and Arthur Gervais of Imperial College London:
"Blockchain as a technology has gained much attention beyond the purpose of financial transactions – distributed cloud storage, smart property, Internet of Things, supply-chain management, health care, ownership and royalty distribution, and decentralized autonomous organizations."
Analysts concur that opportunities are emerging in many sectors as a result of disruptive blockchain technology.
MarketsandMarkets Research points out:
"The global blockchain market size is expected to grow from US$3.0 billion in 2020 to US$39.7 billion by 2025, at an impressive compound annual Growth rate (CAGR) of 67.3% during 2020–2025."
Therefore, businesses that might provide access to financial technology, decentralized finance applications, and blockchain, have been increasingly in the news.
For instance, some investors are looking at stocks like Coinbase Global (NASDAQ: COIN ), PayPal (NASDAQ: PYPL ) or Square (NYSE: SQ ) to determine if they would be appropriate additions for long-term portfolios.
Meanwhile, despite the recent sell-off in most cryptocurrencies, many of these assets have also seen significant returns so far this year. For example:
- Bitcoin is up about 57% year-to-date (YTD);
- Cardano is up 881% YTD;
- Ethereum is up 334% YTD;
- Dogecoin is up 5,520% YTD;
- Ripple is up 297% YTD.
Understandably, these gains are significant. Yet, for most retail investors, weathering the short-term volatility in cryptocurrencies is not easy.
So today we introduce two exchange-traded funds (ETFs) that could appeal to readers who want to invest in companies that are becoming prominent players in blockchain and digital assets, but without having the short-term rollercoaster moves seen in cryptos. Let’s take a look.
1. First Trust Indxx Innovative Transaction & Process ETF
Current Price: $43.35
52-Week Range: $30.06 - $43.28
Dividend Yield: 1.12%
Expense Ratio: 0.65% per year
The First Trust Indxx Innovative Transaction & Process ETF (NASDAQ: LEGR ) provides exposure to blockchain technology companies. These firms could either be developing or actively using the technology.
LEGR, which has 100 holdings, tracks the Indxx Blockchain index. The fund began trading in January 2018. About a third of the stocks come from the U.S. These are followed by firms based in China (10.87%), India (7.07%), Germany (6.80%) and France (6.22%).
In terms of the sub-sectoral breakdown, information technology and financials comprise the largest portions, with 36.28% and 35.26%, respectively. Next in line are communication services (8.21%) and consumer discretionary shares (7.51%). The fund’s top 10 holdings account for less than 15% of net assets of $117.8 million. No stock currently has a weighting of more than 1.90%.
Among the leading names in the roster are chip heavyweights Nvidia (NASDAQ: NVDA ), Advanced Micro Devices (NASDAQ: AMD ) and Texas Instruments (NASDAQ: TXN ); India-based IT group Wipro (NS: WIPR ) (NYSE: WIT ), enterprise software provider Oracle (NYSE: ORCL ), tech giants International Business Machines (NYSE: IBM ) and Microsoft (NASDAQ: MSFT ), as well, as telecommunications names Deutsche Telekom (DE: DTEGn ) (OTC: DTEGY ) and Swisscom (OTC: SCMWY ).
Over the past year, the fund is up 35% and hit an all-time high in recent days. Interested readers could regard a potential short-term decline toward the $40 level as a better entry point. We like the diversity of this ETF.
2. Capital Link NextGen Protocol ETF
Current Price: $43.38
52-Week Range: $30.63 - $43.96
Dividend Yield: 0.35%
Expense Ratio: 0.95% per year
The Capital Link NextGen Protocol ETF (NYSE: KOIN ) invests in fintech businesses. Some of these names are digital asset providers, while others offer products or services that help other companies adopt related technologies.
KOIN, which tracks the ATFI Global NextGen Fintech Index, currently has 43 holdings. The fund started trading in January 2018. It is a small, top-heavy fund whose top 10 holdings account for 40% of net assets of $30.3 million.
Like our earlier fund LEGR, Nvidia, Microsoft, and Oracle are among the leading names. In addition, it holds Amazon (NASDAQ: AMZN ), Visa (NYSE: V ), Mastercard (NYSE: MA :NYSE), Taiwan Semiconductor Manufacturing (NYSE: TSM ), Intel (NASDAQ: INTC ), and Nestlé (OTC: NSRGY )).
Over the past year, the fund is up about 34% and also saw a record high in recent days. In case of a short-term decline toward $40, the margin of safety would improve for buy-and-hold investors.
Despite the recent run-ups in price in both LEGR and KOIN, as well as other funds that focus on fintech and blockchain names, we believe secular developments will provide further tailwinds to many stocks in these ETFs.
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