Franklin Templeton’s two exchange-traded funds that channel portfolio-company dividends into bitcoin started trading on Nasdaq on Thursday, Oct. 29, and recorded about $72,000 in combined turnover in their first session. Based on Unchained’s calculation from Nasdaq daily trading data, FBEQ traded 2,461 shares, worth about $62,000 at its $25.28 close, while FIBT traded 399 shares, worth about $9,800 at its $24.52 close.
Fees and portfolio managers
According to the FBEQ summary prospectus and FIBT summary prospectus filed with the U.S. Securities and Exchange Commission on Oct. 27, the Franklin US Equity Bitcoin DRIP Index ETF (FBEQ) charges 0.09% annually and the Franklin US Innovation Bitcoin DRIP Index ETF (FIBT) charges 0.19%. Neither fund carries a 12b-1 distribution fee.
The two prospectuses list the same four portfolio managers: Dina Ting, Hailey Harris, Joe Diederich and Basit Amin. They come from investment manager Franklin Advisory Services and sub-adviser Franklin Templeton Institutional.
How the funds get bitcoin exposure
The prospectuses do not list bitcoin itself among the funds’ bitcoin investments. Instead, each fund seeks to mirror its index’s bitcoin weight through three types of holdings: bitcoin exchange-traded products, which may include products sponsored by Franklin affiliates; futures and options on bitcoin or on those products; and depositary receipts that represent ownership of bitcoin.
Part of that exposure may be held through a wholly owned Cayman Islands subsidiary.
Indexes start at 95% stocks and 5% bitcoin
Both indexes are run by VettaFi. FBEQ tracks the VettaFi US Large-Cap 500 Bitcoin DRIP Index, which is built from large U.S. companies. FIBT draws on the VettaFi US Innovation 100 Index, a basket of 100 U.S. companies listed on Nasdaq and selected by market value, with financial firms excluded.
Each index began with a 95% allocation to stocks and a 5% allocation to bitcoin. Every regular or special dividend paid by constituent companies is directed into bitcoin at the next market open after the ex-dividend date, which means dividends can increase the bitcoin weight between rebalances.
That weight is reviewed every quarter. If it is above 5%, it is cut to 4.5%. If it is at or below 5%, it stays unchanged. If bitcoin rises above 20% at any close between quarterly reviews, the index resets the bitcoin weight to 4.5% at the close two business days later.
From June filing to listing
Franklin first filed for the two funds on June 18. It registered the shares for trading on Nasdaq through a Form 8-A on Oct. 22, and the final prospectuses are dated Oct. 27.
Because dividends are directed into bitcoin between rebalances, how far each fund’s bitcoin weight moves above 5% in a given quarter will depend on the payouts made by its portfolio companies and on bitcoin’s price.
