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This blockchain ETF evolves with the industry

Harvest Portfolio Group launched Canada's first blockchain ETF in 2018. CIO Paul MacDonald discusses how the fund has evolved.

Blockchain technology came into focus in 2018 capturing headlines with the potential of its unique ledger-sharing capabilities.

Since then, the exploration of blockchain’s potential has spread to most sectors. These include governments, insurance, financial services, healthcare, food safety, and transportation logistics.  Blockchain is being used to make existing tasks more efficient and less open to fraud. 

Harvest Portfolios Group launched the Blockchain Technologies ETF (TSX: HBLK) in 2018 to capture this new technology. It was Canada’s first Blockchain ETF and holds a cross section of large cap technology companies and emerging stand-alone blockchain companies.

Blockchain’s advantage is that once entries are made to an electronic contract, agreement or shared document, the entries cannot be changed. Everyone can see the transaction details as they are entered and the time they are entered. It makes them tamper proof. There is enormous potential in that simple idea.

Paul MacDonald is Chief Investment Officer at Harvest Portfolio Group. Credit: Harvest Portfolio Group

In an interview, Harvest’s Chief Investment Officer, Paul MacDonald discussed how the fund has evolved since launch.

 Q: How has Blockchain space changed since 2018? 

PM: When we launched two years ago, there was a lot of speculation about how Blockchain would develop and affect our lives. A number of pilot projects were under way, but it was still in its infancy.

Over the past couple of years things have shifted to more practical applications and blockchain is taking hold in large organizations.

What was your strategy?

We designed the fund to participate in the technology over time. We didn’t know how it was  going to mature, so we designed the index to initially hold 55% in emerging blockchain companies and 45% in large cap technology companies.

The thinking was that as the technology sector matured, you move to a much more focused, pure blockchain focus versus a balancing act. It is still at 45% large cap and 55% emerging. However it is now getting close to a 65% weighting in emerging companies. Eventually it goes to 100% emerging.

What are the main holdings?

The top five are DocuSign Inc. (5.6%), Square Inc., (5.5%) Inc., (5.4%) Virtusa Corp. (5.4%) and EPAM Systems Inc. (5.2%).  IBM, Oracle, Intel, Infosys, Microsoft and Visa and Accenture are among the holdings.

The fund had an average market capitalization of US$181 billion through Nov. 30, 2020 with a dividend yield of 0.79% and a management fee is 0.65%. It has $8.9 million in assets.

The large cap holdings have done well

For sure. DocuSign is a great example of a company that this benefited from blockchain and the requirement for online ID validation. Its products allow companies to manage electronic agreements. The other areas within the portfolio that have really benefited are our IT consultants and the large cap names including Accenture, Microsoft and Oracle.

New companies have started to show up with products that have a large blockchain component in their businesses. One of the recent additions is Quisitive Technology Solutions Inc., a Canadian company. It is a digital technology consultant, specializing in blockchain and transformative technologies. Square is a financial services and mobile payment company based in San Francisco. It makes software and hardware payments products.

 Many investors find Blockchain hard to understand

That’s fair. It’s going to be part of our everyday life, even though we may not see it, day to day.

It is not a simple technology, but it is going to change the way we do business. There’s no question that having a tamper proof peer-to-peer tracking ledger is invaluable. Once people start to get comfortable with it then the adoption will spread.

Do you have an example?

Sure.  Blockchain is being implemented in many places.

They include such thing as medical records, prescription drug tracking, reducing insurance fraud and digital content ownership. 

In Ontario we attach stickers to our license plates every year. You pay a fee and the stickers come in the mail. But who needs the sticker if the information is online and unique to your car? You could add other related information as well: the history of the vehicle, other owners, any accidents and maintenance records. You could track every part in the car as it was made. So, if was stolen and resold with different parts, you would know.

 There are applications like that across every sector.

What is blockchain’s potential?

We are not 100% sure how it will unfold. The primary business now is on the consulting side with businesses implementing blockchain to improve their efficiencies or satisfy regulatory requirements and burden. Other areas gaining traction now are in the payment processing businesses that is also expanding to allow for crypto currency processing at everyday retailers.  That may change and evolve too.

Thank you.

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