The funds, FBEQ and FIBT, start at 95% U.S. stocks and 5% bitcoin and reinvest every dividend into bitcoin, so the crypto share grows over time. They are registered to trade on Nasdaq, and a prospectus lists an Oct. 27 effective date.
Franklin Templeton has moved two unusual bitcoin funds a step closer to market.
The firm filed registrations on Oct. 22 for the Franklin US Equity Bitcoin DRIP Index ETF, ticker FBEQ, and the Franklin US Innovation Bitcoin DRIP Index ETF, ticker FIBT, to trade on the Nasdaq Stock Market. A prospectus filed the same day lists Oct. 27 as the effective date and annual fees of 0.09% for FBEQ and 0.19% for FIBT. Franklin has not announced a launch date.
How the funds work
Each fund tracks an index that begins at 95% U.S. stocks and 5% bitcoin. The twist is what happens to the dividends. "All regular and special dividends are reinvested into bitcoin at the market open on the day following the dividend ex-date, which increases bitcoin exposure over time," the funds' original filing says.
In other words, the stock portion pays for a slowly growing bitcoin position. An investor who holds the fund for years ends up with more bitcoin exposure than at the start, without making a separate decision to buy it.
The funds were first filed in June, and their effective date has been pushed back several times since.
Small flows, new wrapper
The amount of bitcoin these funds would buy is likely to be small. Dividend yields on U.S. stocks are low, so even a large fund would channel only a fraction of its assets into bitcoin each year.
The significance is the packaging. Spot bitcoin ETFs require an investor to choose bitcoin outright. These funds put a small bitcoin sleeve inside a familiar equity product, aimed at investors and advisers who might never buy a standalone crypto fund.
On-ramp or niche
The case for the product is that it is a gentle, automatic route into bitcoin for income-oriented investors, from a large traditional asset manager.
The case against is that hybrid funds can be hard to explain, flows may stay small, and turning taxable dividends into bitcoin purchases adds complexity for investors.
The registration came a day after U.S. spot bitcoin ETFs posted net outflows of about $636 million, their largest daily withdrawal since June. Bitcoin traded near $81,500 on Friday afternoon.
What to watch
A launch announcement, early asset growth, and whether other managers file similar hybrid products.