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Taking Note of the beneficiaries of Blockchain

Kleinwort Hambros has launched a new, actively-managed investment in the form of a Luxembourg-listed, exchange-traded note (ETN), designed to provide market access to companies that may benefit from the development and adoption of blockchain technology.

The portfolio manager has selected a pool of shares underlying the note from a broad range of industries, from banking to shipping to technology. Shipping and the producers of bulk commodities are in scope, because of the large margin improvement they could gain from blockchain. “We like companies with complex supply chains, and those with strong market positions that are difficult to disrupt,” said John Birdwood, Portfolio Manager at Kleinwort Hambros.

The underlying intent is to locate businesses that have data management issues and work on low margins, in the expectation that the introduction of blockchain technology will make for an increase in operating margins. “The companies we have spotted are the systems software providers, like IBM; but also Adobe, which seems to have a firm hold on documents that you can’t change, so there are quite a lot of technology businesses,” said John Birdwood, Portfolio Manager at Kleinwort Hambros.

The shares of 20 companies have been included in a strategy that is open to changes in constituents. “We have included a couple of custody banks, because that business is labour intensive but with a fairly secure moat,” said Birdwood. “If you are a large US pension fund with multiple managers and one master custodian for all your assets, you are not going to give your custody business to a start-up. You want somebody with the reputation, the network as well as the appropriate licences.”

As an ETN, the investment is open-ended and “an efficient way of accessing a strategy that will be important in years to come,” said Birdwood. “ETNs are transparent investments that immediately track changes in the prices of the underlying shares and reflect that in the price of the note. The structure also gives us the opportunity to manage the underlying shares actively, because there are bound to be missed opportunities that suddenly become apparent, in which case we need to be able to make changes,” said Birdwood

The note is available in minimum denominations of £1,000 and is only available to existing or prospective clients of Kleinwort Hambros, and offers access to a technology that, in the energy sector alone, is set to increase from $208 million in 2017 to $11.9 billion in 2024, according to Zion Market Research (Dec 2018).

For more information, please contact Thomas Bellon at thomas.bellon@kleinworthambros.com