Does Invesco’s new mutual fund offer investors a play on crypto?

According to Invesco Asset Management’s presentation, the underlying fund, Invesco CoinShares Global Blockchain UCITS ETF, aims to achieve the performance of the CoinShares Blockchain Global Equity Index. The latest review document published by the index provider (CoinShares) states that the index aims to offer exposure to listed companies that participate or have the potential to participate in the blockchain or cryptocurrency ecosystem.

The review document further adds, “During the quarter ended October 2021, the CoinShares Blockchain Global Equity Index generated a total return of 12.9%, in comparison to the MSCI World Net Total Return Index, which generated a total return of 3.8%. This strong quarter was primarily driven by a resurgence in crypto prices. However, although crypto prices overtook their April 2021 highs, stock valuations have not returned to the elevated levels seen in the first half of the year.”

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Invesco CoinShares Global Blockchain ETF has a size of $1.075 billion and is domiciled in Ireland. It was launched on 8 March 2019. Since inception, the ETF has delivered 238% in absolute terms compared to the 1,572% return delivered by bitcoin.

However, the ETF’s broader universe of blockchain and tech companies also makes it less volatile than bitcoin. When bitcoin nearly halved from around $60,000 to $30,000-odd levels from March to June 2021, the fund took a hit of just about 20%. However, the fund is more volatile than a broad equity index.

According to the fund’s presentation, its one-year standard deviation is 31.1% compared to 11.1% for the MSCI World Index. Bitcoin, on the other hand, has a one-year standard deviation of 75.5%, said a senior financial services executive, who declined to be named.

The Invesco ETF has a mix of crypto-related stocks and companies that are in the broader tech space. The ETF’s largest holding (4.83%) is Coinbase Global Inc., a US-based cryptocurrency exchange. It’s second largest holding (4.34%), GMO Internet is a Japanese company engaged in businesses such as ‘internet infrastructure, online advertising and media, internet finance businesses and cryptocurrency’, according to its website.

Around 65% of the ETF’s portfolio is in blockchain-related companies and 35% is in companies providing broking services, mining operations or are crypto asset exchanges, or provide financial services, says the executive mentioned earlier.

“The fund counts among its holdings providers of technology, technology hardware, software, systems, networking, financing projects; companies like IBM (one of the pioneers working in enterprise blockchain space), Oracle, Intel, AMD, Samsung Electronics, NTT Data Corp, Taiwan Semiconductor, Qualcomm,” he said.

The Invesco India presentation points to the increasing adoption of blockchain tech in the world, including India. Blockchain is the technology that enables cryptocurrencies to exist, but it is not identical with them. “The BFSI sector is leading the blockchain adoption in India. There are more blockchain solution implementations across major banks and insurance companies,” it adds.

A Nasscom report cited in the presentation points to specific examples such as ICICI Bank using blockchain in international remittances and Bajaj Allianz General Insurance using blockchain in claims settlement.

The healthcare sector is also adopting blockchain, it says. “Apollo Hospitals is collaborating with Oracle, Strides Pharma and NITI Aayog to build a blockchain solution that will store drug details such as drug serial number, labelling and scanning details about manufacturers’ supply chain which will track every hand change in the network,” the presentation says.

Private companies and government institutions in India are warming up to the idea of blockchain.

As Mint reported earlier, market regulator Sebi has asked depositories to create, host and maintain a system using the distributed ledger technology, or blockchain technology, to record and monitor the creation of securities as well as to monitor the covenants of non-convertible securities, which will be tested from 1 January 2022.

The Invesco CoinShares Global Blockchain ETF FoF is, at best, a limited bet on crypto. The fund does not directly hold any cryptocurrencies. It benefits from rising crypto prices by investing a part of its portfolio in firms related to the crypto industry. The correlation of daily returns of the ETF and bitcoin prices over the past year is just 20%. However, for investors who are curious about this space, this may be a conservative way to take a small exposure to the crypto space.