While cryptocurrency remains an embattled asset class owing to 2022’s dramatic declines, the group remains a hotbed of news flow and that includes exchange traded funds.
Unfortunately, the news doesn’t involve the Securities and Exchange Commission (SEC) approving a spot bitcoin ETF – arguably one of the most desired products in fund industry history. However, Charles Schwab made some waves last week, announcing that its Schwab Asset Management unit, which includes its ETF business, is rolling an equity-based crypto fund.
The Schwab Crypto Thematic ETF (NYSEARCA:STCE) is slated to debut later this week. Scores of advisors are familiar with Schwab through clearing and custody relationships and many more are familiar with the firm’s ETF and index and mutual fund offerings.
Advisors knowledgeable of Schwab’s ETF evolution know the firm was relatively late to the ETF game, but leveraging its well-known brand, reputation for low fees and enviable distribution capabilities, the company is now the fifth-largest U.S. ETF issuer.
Crypto ETF Departure for Schwab
Something that advisors know about Schwab ETFs is that the issuer’s lineup is bland, comprised largely of plain vanilla broad market strategies and some smart beta funds, which are far from exotic.
In other words, Schwab existing ETF reputation makes the Schwab Crypto Thematic ETF a standout within the confines of the issuer existing lineup. On a related note, STCE is tracking an in-house index while many other Schwab ETFs are linked to benchmarks provided by third-party firms.
“The fund is designed to track Schwab Asset Management’s new proprietary index, the Schwab Crypto Thematic Index, providing investors with global exposure to companies that may benefit from the development or utilization of cryptocurrencies and other digital assets,” according to a statement issued by Schwab.
While the Schwab Crypto Thematic Index uses a unique methodology, including human inputs, artificial intelligence and technology, it’s likely that its components will be familiar to advisors and investors that are experienced with ETFs of this ilk. It’s reasonable to expect Schwab’s newest ETF will be chock full of bitcoin miners, fintech stocks such as Block (NYSE:SQ) and PayPal (NASDAQ:PYPL) and other crypto-related fare such as Coinbase (NASDAQ:COIN) and Silvergate Capital (NYSE:SI).
Admittedly, STCE’s roster isn’t public as of yet, but owing to the fact that several of ETFs of this type already exist, educated guesses about the Schwab ETF’s portfolio aren’t hard to come by. Translation: Perhaps the most interesting thing about STCE is the issuer, not the fund.
“The index does not directly track or invest in cryptocurrencies. Rather, it is designed to deliver global exposure to companies that may benefit from one or more of the following business activities: either directly or facilitating others in validating consensus mechanisms for (such as mining or staking) investing in, or trading cryptocurrency or other digital assets; enabling the use of cryptocurrency or other digital assets to buy or sell goods or services; and developing, distributing or implementing applications of blockchain or other distributed ledger technology, including in new cryptocurrencies or digital assets,” adds Schwab.
That’s comparable to what existing funds in this category aim to do.
A Point in STCE’s Favor
The point of this piece isn’t to knock Schwab or the upcoming crypto ETF. Rather, it’s to drive home the point that simply because Schwab is issuing a crypto ETF, that doesn’t mean the ETF industry is going to be dramatically altered.
However, in the essence of fairness, STCE will sport an annual expense ratio of 0.30%, or $30 on a $10,000 investment. That’s the lowest in the crypto ETF category. Coupled with the Schwab brand, that could make STCE a formidable addition to this area of the thematic ETF landscape.