I noted in a previous post that finding ways to invest in the rapidly growing Blockchain / DeFi ecosphere is tough. It is early days in an emerging sector that has a ton of opportunity. But most participants aren’t easily understood, profitable or transparent by way of available research. At the top end of the market, there are a variety of funds that have emerged for institutional investors, which invest in private start ups. And there are a few publicly traded ETFs and investment trusts that offer direct price exposure to individual crypto currencies for retail investors. But nothing else. Or so I thought!

One of the issues facing potential Blockchain sector ETFs is what I’ve noted before – There just aren’t that many companies with enough liquidity and viability for them create an ETF around. Investors do not want to invest in under diversified ETFs full of companies with little or no revenue. But they do want exposure to an emergent asset class. What to do?

While digging around I came across the Harvest Blockchain Technologies ETF (TSX: HBLK). This is a small (currently 19.9 million of assets) ETF Managed by Harvest Exchange Traded Funds. They’ve solved the lack of investible companies issue with surprising aplomb……they’ve created an ETF that has holds two ‘sectors’ of the blockchain universe – ‘Large Cap‘ (highly liquid, researched and solvent) companies that are established and utilizing or adopting blockchain into their businesses, and ‘Dedicated‘ (Emerging) companies whose business model is based exclusively on the utilization or commercialization of some aspect of blockchain technology. These ‘dedicated’ companies tend to skew to earlier stage, smaller capitalization businesses.

They then have a stage-based model which allocates more of the fund to the ‘dedicated’ sector on an ongoing basis dependent upon specific metrics of the constituents of the emergent index segment.

Sounds complicated. It kinda is, even for an index fund. There is a lot going on. But, the net result is that over time, as the emergent blockchain sector and the companies therein grow and mature, more of the fund will be allocated exclusively to this area, ultimately resulting in a 100% allocation to ‘dedicated’ blockchain companies. Uber Cool.

So – They’ve solved – or at least managed around – the lack of established, liquid companies in the sector by utilizing large cap proxies which will benefit from blockchain. They’ve lowered the risks of a ‘pure’ blockchain portfolio. But they have steadily increasing exposure to pure blockchain plays as they merit it through the maturation of the sector.

Well played Harvest, Well Played!

Like the sector it follows, the performance of the ETF has been recently stellar.

I like this ETF. It allows investment into the sector in a diversified manner for those who aren’t comfortable or capable of individual security selection. It utilizes a novel approach to index construction and management. It is not for the faint hearted and is highly volatile. It is also very small in ETF terms with assets currently less than 20 million, which may be cause for concern as being small, it may not be viable for Harvest to continue to operate on a stand alone basis. I’d think if things go well they’ll raise some more money for it at some point.

Remember, I am not offering financial advice or recommending this investment. Do your own research, particularly at this stage of the market cycle. I’m just commenting on an ETF that is really neat.

More information about this ETF can be found at https://harvestportfolios.com/etf/etf-blockchain-technologies-etf/