key takeaways
key takeaways
- WisdomTree recently added bitcoin futures contracts to its Enhanced Commodity Strategy Fund and its Managed Futures Strategy Fund
- Adding exposure to bitcoin futures helps funds from a marketing perspective, according to Morningstar’s director of global ETF research
Investors in mutual funds and ETFs may be getting exposure to crypto without even noticing, as fund managers have increasingly expanded their mandates to allocate to bitcoin futures contracts and other crypto-related investments.
ETF issuer WisdomTree, which has 75 ETFs trading in the US with nearly $50 billion in combined assets, now offers exposure to bitcoin futures contracts within its actively managed commodity and managed futures strategies.
BlackRock, the world’s largest asset manager, began allowing two of its funds with $70 billion in assets to offer crypto exposure a year ago and has also been allocating to bitcoin futures.
Crypto exposure in ETFs
WisdomTree’s Enhanced Commodity Strategy Fund (GCC), which may invest up to 5% of its net assets in bitcoin futures contracts, added a 3% allocation to bitcoin futures in October, a firm spokesperson told Blockworks. The fund has $225 million in assets.
“The 3% allocation to bitcoin futures was made from the fund’s position in gold, motivated by the view that bitcoin is often compared to digital gold,” WisdomTree Global CIO Jeremy Schwartz told Blockworks in an email.
As of Jan. 10, GCC reported a 9.4% allocation to gold, and its allocation to bitcoin shrunk slightly from October to about 2%, according to WisdomTree’s website.
The WisdomTree Managed Futures Strategy Fund (WTMF), which has $163 million in assets, gained the ability to allocate up to 5% bitcoin futures exposure on Jan. 1. It added a roughly 1.5% allocation to bitcoin futures contracts on Jan. 6, according to a firm spokesperson.
The low historical correlation between bitcoin futures and other asset classes bodes well for enhancing the risk-adjusted return profile, Schwartz explained.
“We are not in a full position based on the short-term pull-back we’ve experienced but also think the long-term trends represent an attractive entry point for our starter position in this strategy,” Schwartz added. “The weighting is more tactical and will evolve as the market evolves.”
Both GCC and WTMF are actively managed ETFs, which allows them to adapt to markets quicker than indexes with stakeholders with concerns trading of crypto futures, the WisdomTree executive explained.
“We expect, in time, even futures-based index strategies will see the diversifying appeal of bitcoin futures and look to add it to commodity strategies,” Schwartz said, “and we like being an early leader in this vein.”
Crypto-related investments have also been packaged within equity ETFs.
Simplify ETFs launched its US Equity PLUS GBTC ETF (SPBC) in May. The fund, which has $114m in assets, primarily invests in US equities while also offering investors a 10% exposure to bitcoin through the Grayscale Bitcoin Trust (GBTC).
Fund group Global X brought to market its Blockchain & Bitcoin Strategy ETF (BITS) in November. The fund invests in global issuers that the firm believes are positioned to benefit from further advances in blockchain technology, as well as long positions on US-listed bitcoin futures contracts.
Some are skeptical about the benefit of adding crypto exposure to funds, however. “Whether there is investment merit in adding exposure to bitcoin futures is debatable; there is no debate that it helps boost these funds’ marketing,” Ben Johnson, director of global ETF research for Morningstar, told Blockworks. “It is in many ways akin to how you see processed food marketed. ‘Now with Bitcoin!’ is becoming the ‘Now with Omega 3s’ of the asset management industry.”
Asset managers have one of three views of crypto, according to David Snowball, publisher of the Mutual Fund Observer.
“The first group avoids crypto and occasionally wonders about how to profit from the coming disaster,” Snowball explained. “The second group imagines adding a 5% position as a hedge to a traditional portfolio. The third group uses it as a marketing gimmick … or as a tool to goose lackluster returns.”
BTC exposure in mutual funds
BlackRock revealed in January 2021 filings that its Strategic Income Opportunities Fund (BASIX) and its Global Allocation Fund (MDLOX) could invest in cash-settled bitcoin futures traded on commodity exchanges registered with the Commodity Futures Trading Commission (CFTC).
According to a report obtained by Blockworks from BlackRock, the Strategic Income Opportunities Fund had long positions on 123 exchange-traded bitcoin futures contracts, as of June 30, which were set to expire on July 30, 2021. A separate report showed that the Global Allocation Fund had long positions on 80 bitcoin futures contracts, as of April 30, which were set to expire on May 28.
A BlackRock spokesperson declined to comment on the reasoning behind its bitcoin futures allocation levels or if the firm intends to allow more of its funds to make such investments.
Neuberger Berman revealed in an Aug. 11 SEC filing that its Commodity Strategy Fund (NRBAX) would offer exposure to cryptocurrency investments and digital assets through crypto derivatives, such as bitcoin futures and ether futures, as well as investments in bitcoin trusts and ETFs.
The fund’s allocation to crypto-related investments was 0.88%, as of Nov. 30, according to a Neuberger Berman spokesperson.
Morningstar Analyst Bobby Blue said in a November research note that 47 mutual funds and separately managed accounts held the Grayscale Bitcoin Trust as of September, which is the most of any crypto investment product.
Morgan Stanley bought millions of additional shares of GBTC for a few of its funds during the third quarter of 2021.
Stone Ridge Asset Management revealed in a February filing that its Diversified Alternatives Fund (SRDAX) would look to generate returns by selling put options on bitcoin, bitcoin futures contracts and ETFs that invest in bitcoin futures or the crypto asset directly.
The $312 million fund had invested in 80 bitcoin futures contracts, which were set to expire on Nov. 28, 2021, according to an annual report released on Oct. 31.
Though a handful of managers that modified their funds to enable them to add investments such as bitcoin futures have begun allocating to crypto-related investments, others have not yet, Mutual Fund Observer’s Snowball noted. He added that prospectuses often contain strategies that managers have no intention of using.
“Large funds and ETFs are not known for being bold or innovative; their greater impulse is to retain assets, which is easier with calm mediocrity than with explosive moves,” Snowball said. “If one or two large funds … make dramatic gains in assets through crypto exposure, I would expect the herd to soon follow.”
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