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ARK Invest's BLOK: Pricing Metrics to Change for Investors

Pricing the ETF will be more multidimensional than simply correlating it to bitcoin's price

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Steve Gray Booyens
Sep 02, 2021

Summary

  • Its asset correlations are changing.
  • Price is currently exceeding NAV.
  • Investors should consider management fees and compensation as competition arises.
Article's Main Image

Catherine Wood (Trades, Portfolio)'s Amplify Transformational Data Sharing ETF (BLOK, Financial) is currently trading above its net asset value as investors regain confidence in ARK's philosophy. But data shows that the investment product requires an alternative pricing theory moving forward.

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Source: ARK Invest

The exchange-traded fund is otherwise known as BLOK, which is short for blockchain. It's up by 12% for the month, but still down by 10% for the year. The ETF holds a strong correlation with bitcoin as its portfolio is comprised of companies that are developing, integrating and utilizing blockchain technology.

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Source: Bloomberg.

I believe the correlation will subside as time evolves. BLOK holds large-cap stocks in its portfolio, such as PayPal (

PYPL, Financial), Square (SQ, Financial) and MicroStrategy (MSTR, Financial), that have nothing to do with the price of bitcoin, but rather use similar technology. I thus feel as though the ETF might be priced more sensibly in the future instead of trading alongside the price of bitcoin. Let's have a look at a few rolling correlations.

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Source: Portfolio Visualizer

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Source: Portfolio Visualizer

If we take note of the PayPal and square rolling correlation and the deviation of the ETF's performance versus bitcoin price, it's clear to see that we might be entering a new paradigm for pricing the asset.

As the "blockchain-related" asset universe expands, BLOK could very well find prominence as it's an actively managed ETF that can circle out of underperforming assets and into new exciting prospects.

It's critical to look at management.

Wood's ETF is running at an expense ratio of 32.71% higher than the asset class median, while only yielding 1.31% in payouts, which is 31.08% lower than the sector.

In the same breath, there is much competition on the way for BLOK. Goldman Sachs (

GS, Financial) is launching a new defi (decentralized finance) ETF to rival ARK, and I expect this to be the first in a breakout of institutional ETFs to be listed. Thus, investors should keep a close eye on management fees and payouts as they price the asset or if they consider investing based on fundamentals.

Final word

Amplify Transformational Data Sharing ETF is heading into a new paradigm. The ETFs pricing won't be bound to bitcoin's price as it has in the past and investors can expect more correlation with a broader range of underlying assets in the future, which could mean the net asset value and price will often converge.

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Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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