Franklin Templeton has registered two exchange-traded funds for a Nasdaq listing that aim to turn US stock dividends into Bitcoin exposure. An October 22 securities filing identifies the proposed tickers FBEQ and FIBT, although the company has not announced a trading launch date.
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The $1.8 trillion asset manager plans to offer the Franklin US Equity Bitcoin DRIP Index ETF and Franklin US Innovation Bitcoin DRIP Index ETF. Both products will invest mainly in US stocks and use dividends to increase Bitcoin-related holdings.
As per SEC registration, the fund idea was first announced by Franklin Templeton in June. Later, the firm filed an amendment to its registration papers before registering its latest securities under Section 12(b) of the Securities Exchange Act.
Filing of the security registration puts the fund closer to trading. However, the filing of the security registration does not necessarily mean that shares have begun trading.
How Will Franklin Templeton’s Bitcoin ETFs Work?
The two funds will track different indices provided by VettaFi. Both of them have initial holdings of 95% US equities and 5% Bitcoin-based securities.
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Franklin US Equity Bitcoin DRIP Index ETF will track the VettaFi US Large-Cap 500 Bitcoin DRIP Index. The stock holdings in the portfolio of this fund are based on the index that is compiled using the 500 largest US firms.
In turn, the Innovation Bitcoin DRIP Index ETF will track the VettaFi US Innovation 100 Bitcoin DRIP Index. The basis of the index is the 100 largest companies picked from the innovative Nasdaq stocks universe.
While the funds’ stock picks differ, their dividend strategy is the same. Franklin Templeton will allocate its regular and special dividends to increase exposure to Bitcoin rather than use it to purchase more stock.
According to the indexing strategy, dividend reinvestment takes place on the day after the ex-dividend date of respective companies. The allocation will be invested in Bitcoin-based exchange-traded products and other investment securities.
The investor will not get Bitcoin but will hold ETF shares instead. His/her return on investment will be affected by the changes in stock prices and Bitcoin-based security prices.
The proposed annual management fee of the two funds will be 0.09%. Franklin Templeton offers equity-based products with additional cryptocurrency allocation.
Why Is Bitcoin Exposure Capped at 20%?
Allocation limits have been set by Franklin Templeton to avoid Bitcoin exposure from becoming the largest part of the portfolio. There will be an initial allocation of 5%, and the subsequent review will determine any further increase.
In case of quarterly rebalancing, when Bitcoin exposure exceeds 5%, the exposure will be limited to 4.5%. Meanwhile, other parts of the portfolio will be reallocated to equities according to the index rules.
Another limit will work between scheduled reviews: if Bitcoin exposure goes above 20%, the index will reduce exposure to 4.5% on the second business day after the threshold has been reached.
Both indexes will rely on Kaiko Bitcoin New York Reference Rate at 4 p.m. Eastern Time for valuation purposes. Cryptocurrency volatility, custody risks, transaction fees, and changes in the regulation are other investment risks named by Franklin Templeton.
How Is Franklin Templeton Expanding Digital Asset Products?
This is one of the recent moves made by the firm within its cryptocurrency portfolio. The current Franklin Bitcoin ETF, listed as EZBC, already gives exposure to Bitcoin.
From the data provided on October 22, EZBC had been experiencing around $335 million worth of net inflows. In addition, EZBC attracted $7.3 million in Wednesday’s trading session.
During August, Franklin Templeton got SEC staff no-action relief regarding the investments in its OnChain U.S. Government Money Fund, which was named BENJI. This is in regard to the custody requirements of fund shares through blockchain technology.
Furthermore, the firm had partnered with Bybit during September. Eligible institutional investors were able to participate in a program involving off-exchange trading of tokenized fund shares in order to obtain credit lines of USDT and USDC.
These above events represent various types of investments. BENJI offers tokenized money market exposure, while the new DRIP ETFs offer traditional equity combined with Bitcoin investments.
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