Confluence of factors have driven growth for fund, which offers exposure to a bleeding-edge tech subsector
One tech ETF has almost doubled in value in the past two weeks, with most of its rise taking place over a 48-hour period. Not by offering exposure to FANGS, Zoom, or Shopify, though. This ETF, HBLK from Harvest Portfolios Group, indexes a fast-evolving side of the tech space: blockchain.
Blockchain is most commonly understood as the technology behind bitcoin and other cryptocurrencies. Its uses, however, are far wider than just in cryptos. Blockchain is effectively a series of highly complex mathematical equations used to securely store information of ownership and transaction. Tech firms are already using blockchain’s “decentralized leger” to secure banking with fiat currencies, record ownership of major assets like cars and homes, even to record a supply chain – tracking, for example, the journey of a piece of salmon from fishery to table. In 2017, Harvest’s leadership team started asking how they could offer exposure to this technology. They built HBLK to fulfil that goal and, on the back of strong performance by its indexed companies, it has suddenly soared.
“The rise has been driven by a few areas,” says Paul MacDonald, CIO at Harvest Portfolios. “There is more interest among large cap businesses in developing and gaining access to blockchain networks. It’s happened faster than I would have expected and we’re seeing more large-caps participating in a development phase. We’ve also been lucky, including companies like Overstock, an online retailer with their own exchange for transacting assets.”
The fund has been lucky, too, in taking a position in Kodak because of their use of blockchain to secure and manage documents. Recently, Kodak received a key loan and permission to begin manufacturing certain chemicals for COVID-19 treatments. MacDonald says that blockchain didn’t drive this recent growth for Kodak, but it’s been a windfall for the fund.
Another driver has been DocuSign. The electronic signature company is powered by blockchain and has gone from a nice-to-have to an essential service for so many sectors of the global economy during the COVID-19 pandemic.
While the fund doesn’t offer direct exposure to bitcoin, MacDonald says that some firms operating as bitcoin miners are indexed in HBLK. As bitcoin has shot up in value in recent weeks, those firms have enjoyed leveraged growth and the fund, again, has been a beneficiary.
MacDonald says that he expected this fund to double when he and the Harvest team launched it. While he’s surprised by the speed of this recent doubling, he says that on this highly innovative side of the tech space rapid growth and volatility should come as no surprise.
The blockchain subsector, MacDonald says, is still in its infancy and the major leaders in this space haven’t emerged yet. That means, he says, investors should expect volatility but Harvest works to ameliorate that through quarterly rebalancing and reconstitution of the portfolio as the subsector changes. He also says that as the subsector stabilizes and its leaders emerge, investors with a buy-and-hold approach will see volatility lessen over time.
MacDonald says advisors should be looking at this fund for the clients who want to include innovative tech in their portfolios. He says that while the allocation shouldn’t be dominant, it can offer short-term bursts like what we’ve just seen and medium-term growth as secular factors and a global pandemic continue to drive wider adoption of blockchain technology.
“We've always said that this particular fund is in the deep end of the pool from the risk perspective,” MacDonald says. “This is something that, from my perspective, when I invest I want to know that it's high risk, but I also want to be there for that technological innovation and see this fund double like it just has.”
