How to invest in blockchain’s future

Technology can be tough for investors to navigate. While these companies create new products and services, the advances are not always easy to understand. In a rapidly changing environment, picking winners and avoiding the losers is a challenge.

One of the best ways to succeed is to focus on the companies that are most affected by the changes. These are often global players with the money to invest in research and development, and the leeway to make mistakes.

In the third part of a four-part series on emerging technology trends, we look at blockchain the engine behind the crypto currency hype.

 What it means: Just as Tesla is synonymous with electric vehicles, so Bitcoin is to blockchain technology. But blockchain is far more than an artificial currency.

The technology creates a public record of transactions so that everyone who uses the software can see the same information. In theory, this means transactions are transparent and can’t be tampered with, though there isn’t any regulatory oversight and nobody “owns” it, so you have to trust that it works.

Because the transactions are shared across an open network companies can track the movement of goods and settle transactions faster and more cheaply. While the concept has created a lot of excitement, at this point most companies are stories in search of a business, not dissimilar to the dotcom boom of the late 1990s. Blockchain holds promise for companies in banking, insurance, healthcare, and food safety.

 Some companies involved:  If you want to avoid startups and early stage players, Nvidia makes the graphic cards which are used for the algorithm.

Microsoft (NDQ: MSFT), which is seeing sustained growth in its cloud storage business, is working on a number of initiatives where data is remotely maintained, managed, and backed up. It has a partnership with Maersk, the Danish shipping firm, to develop a cloud-based technology for marine insurance that involves an open, shared ledger. The ledger captures information about the movement of containers offering a more accurate assessment of the risk and therefore the cost of insuring the goods. Microsoft has another initiative where it is developing software for low-cost drones to help farmers gather data that will help improve the yield of their crops.

Walmart (NYSE: WMT) and a group of multinationals including Unilever, Nestlé, and Dole, are working with IBM on several initiatives. In a 2016 test Walmart found that it took seven days to trace the origin of a package of sliced mangoes from farm to local store. Working with IBM it created a piece of open software that tracks a pallet of mangoes from harvest in Mexico through each step to a store. Now the search takes two seconds.

Oakville-based Harvest Portfolio Group launched Canada’s first blockchain ETF in February. The fund (TSX: HBLK) has a management fee of 0.65% and invests in stocks exposed, directly or indirectly, to the development and implementation of blockchain and distributed ledger technologies.

Harvest CEO Michael Kovacs says Harvest has created a Blockchain Index where for now 45% of the companies in it are large cap firms – IBM, Visa, Mastercard, and Accenture, as examples. As the industry matures the weighting will change. Kovacs says it is early days for the sector but sees his ETF as a longer-term play for patient investors who are seeking growth and willing to invest 2-3% of their portfolio in the sector. He suggests individuals consult their advisor about suitability. The ETF traded at $8.40 Friday, 27% off its February high.

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This article appeared in the April 9, 2018 edition of Gordon Pape’s Internet Wealth Builder newsletter.