Franklin Files Passive ETFs that Reinvest Dividends into Bitcoin Exposure

Global asset manager Franklin Templeton has filed for two exchange-traded funds (ETFs) designed to convert dividend income from US stocks into Bitcoin exposure, according to a June 18 filing with the US Securities and Exchange Commission (SEC).

The proposed Franklin US Equity Bitcoin DRIP Index ETF and Franklin US Innovation Bitcoin DRIP Index ETF would track indexes that systematically reinvest stock dividends into a Bitcoin allocation, creating a rules-based Bitcoin exposure alongside traditional equity holdings.

According to the filing, the funds would launch with a 5% allocation to Bitcoin exposure and a 95% allocation to US equities. Under the index methodology, regular and special dividends from the stock holdings would be reinvested into the index’s Bitcoin allocation, while quarterly rebalances would maintain the Bitcoin allocation within predefined limits.

The filing states that the funds may gain Bitcoin exposure through a range of instruments, including Bitcoin exchange-traded products, futures contracts, options and Bitcoin-backed depositary receipts. The funds may also hold certain Bitcoin-related investments through a wholly owned Cayman Islands subsidiary.

While the Equity ETF would track a broad US large-cap stock index, the Innovation ETF would track an index composed of the 100 largest non-financial companies listed on Nasdaq.

Both funds would be structured as passive index ETFs tracking proprietary VettaFi indexes. The filing states that the underlying indexes would be rebalanced quarterly and reconstituted semiannually.

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ETF issuers experiment with new Bitcoin strategies

Franklin Templeton’s filing comes as asset managers increasingly experiment with Bitcoin investment products that extend beyond traditional spot ETFs.

Much of that innovation has focused on income generation. In January, BlackRock filed for the iShares Bitcoin Premium Income ETF, which would use an options strategy tied to Bitcoin and its spot Bitcoin ETF to generate additional returns. 

Goldman Sachs followed in April with plans for a Bitcoin income ETF that would invest in spot Bitcoin exchange-traded products and sell call options against those holdings to generate yield while reducing sensitivity to Bitcoin’s price swings.

The following month, Hamilton ETFs entered the market with a proposed leveraged Bitcoin income fund in Canada built around covered-call strategies and short-term options contracts.

Franklin Templeton’s filings come amid weaker demand for US spot Bitcoin ETFs, which recorded six consecutive weeks of net outflows between May 15 and June 18, according to SoSoValue data. 

US spot Bitcoin ETF weekly net flows. Source: SoSoValue

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