First Trust, one of the largest issuers of smart beta exchange traded funds, is trying its hand at blockchain ETFs. The Illinois-based firm became the third issuer to introduce a blockchain fund when the First Trust Indxx Innovative Transaction & Process ETF (NASDAQ: LEGR) debuted on Thursday.
The new ETF tracks the Indxx Blockchain Index. That benchmark follows “companies across the globe that are either actively using, investing in, developing, or have products that are poised to benefit from a new technology known as blockchain. The index seeks to include only companies that have devoted material resources to the use of blockchain technologies,” according to a statement.
Last week, two exchange traded funds designed to be plays on blockchain technology debuted. Those ETFs are the Amplify Transformational Data Sharing ETF (NYSEARCA: BLOK) and the Reality Shares Nasdaq Blockchain Economy ETF (NASDAQ: BLCN) .
A blockchain is a decentralized database shared across all users that facilitates the process of recording transactions and tracking assets across a business network. This foundational technology is expected to pave the way for significant disruptions across many industries.
BLOK utilizes an actively-managed approach to investing in the fast developing world of blockchain-based technology, allowing the fund’s portfolio managers to respond in real-time to valuations, company fundamentals and announcements that may impact the blockchain marketplace.
BLCN tracks the Reality Shares Nasdaq Blockchain Economy Index, according to a SEC exemptive relief filing. The underlying index includes companies that are committing material resources to developing, researching, supporting, innovating or utilizing blockchain technology for their proprietary use or for use by others.
“A growing number of industries and institutions are looking to embed blockchain technology into their day-to-day processes. Blockchain allows customers and suppliers to connect directly, without the need for a central entity, like a bank or financial institution, to make a transaction,” according to First Trust.
LEGR's index is capped at 100 constituents and requires member firms to have market values of at least $500 million.
Companies in LEGR are split into three categories: active enablers, active users and active explorers. Active enablers are companies “actively developing blockchain technology products or systems for their own internal use and for the sale and support of other companies,” said First Trust. Active users are defined as firms use blockchain technologies while active explorers are companies that have publicly said they are considering use of blockchain technologies.
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