Disclaimer: all Fund data in this article has been attained from various company websites and where necessary SwissOne has performed its own calculations of certain fund performances using market prices and disclosed exposures. Therefore, the data shown may not be a true and accurate reflection of the actual fund performances and is for demonstration purposes only.
The global crypto asset management industry faces many challenges in the current environment. It is no surprise that we found more than a quarter of the non-US global crypto funds have shut down their websites over the past 6 months. Since, our previous competitor analysis, we have witnessed a wash out of funds from the market. Moreover, close to 50% of the funds that had indicated coming to market in 1Q19 have failed to emerge with live funds. Adding these funds to those that no longer sport websites, almost 75% of the market 6 months ago is still yet to produce live products for investors.
What were the drivers of such a poor turn out of asset managers in 2019? We believe:
1) A stagnant crypto market for the 6 months ended March 2019 resulting in little demand for the asset class by investors.
2) Exorbitant fees charged by investment service providers in the crypto asset management space due to the perceived risks. Couple these high costs with little appetite for investment (1) results in a challenging business model.
3) Regulators slow decision-making processes with respect to the inclusion of the asset class into the traditional investment space contributes to the high barriers to entry and lack of support from institutions.
Certain companies have managed to overcome the challenges faced by the crypto asset management industry. This analysis focuses only on crypto dedicated asset managers. In the US there are many hedge funds that have taken some exposure to cryptos but are by no means crypto dedicated. The market of crypto dedicated asset managers remains small.
In our analysis below we focus on funds outside the US given the SwissOne investor base demographic. Furthermore, we split the analysis of funds into two groups: Passive/Index funds and Actively managed funds.
GEOGRAPHIC SPLIT OF FUNDS
We focused on funds managing money in the “listed” space i.e. venture capital funds were NOT included. As is in the case with traditional assets, the US and Canada dominate the number of fund offerings on the planet with 185 listed with Crypto Fund Research or 67% of the global crypto funds. There are only 93 funds outside the US. However, it is to be noted that more than 50% of these funds listed by Crypto Fund Research either no longer existed or were in fact offering trading services and not funds at all. For obvious legal issues, many of the Chinese sites were no longer operational.
Hence, the list of dedicated crypto funds is small.
Distribution of the number of Global Crypto Hedge Funds
Source: Crypto Fund Research, SwissOne.Capital
There are no dedicated crypto funds regulated by a financial services authority in the major jurisdictions such as the EU, Switzerland, UK or the US. However, the funds are licensed, registered and/or regulated in other regions of the globe with rights to distribute these funds/products in the major jurisdictions. Under these circumstances, funds/products must adhere to strict marketing policies that present high barriers and challenges to raising capital from institutions in the major jurisdictions. We found a variety of structures in different regions depending on the legal constraints and intents and purposes of the specific fund.
SPLIT OF FUNDS PER STRATEGY
We found that 75% (c.30) of the global dedicated crypto funds outside the US contained ACTIVE investment strategies while the remainder (c.10) were PASSIVE investment strategies.
Source: Crypto Fund Research, Swissone.Capital
Clearly, it is surprising to see the low number of crypto dedicated firms with live products outside the US and even less with passive index products.
Global Passive Funds and Strategy detail
Source: Crypto Fund Research, SwissOne.Capital
The majority of the passive index funds offer market cap weighted strategies. Given Bitcoin’s dominance in market size, it accounts for the majority of these funds’ performance. In the market cap weighted funds, the greater the number of constituents, the lower the exposure to Bitcoin and therefore greater exposure to alternative coins (“alt coins”). An equal-weight strategy, by virtue of Bitcoins dominance has the lowest exposure to Bitcoin of all passive strategies.
It is important to note a few market dynamics when analysing the performance of these funds. The performance of Bitcoin versus alt coins over the past 12 months is probably the largest differentiating factor between passive fund performances.
In the 6–9 months after crypto bubble burst, alt coins significantly under-performed relative to Bitcoin. Therefore, funds with greater exposure to Bitcoin in this period outperformed their peers. While in the recent 3–6 months to date, funds with greater exposure to alt coins have significantly outperformed peers.
In the 12-month period to date, the mean performance of all the funds covered in this analysis was -56.0% versus that of Bitcoin at -40.9%. However, year-to-date (YTD, 31 March 2019 ended), the mean performance was +15.6% versus that of Bitcoin at +10.6%.
The Cryptos Fund with its total number of constituents at 30 has performed the strongest YTD relative to the other market cap weighted funds with a lower number of constituents. This is due to the outperformance of alt coins YTD.
The Tokensuisse fund with the least exposure to Bitcoin YTD as a result of its equal-weight strategy and by default largest exposure to alt coins has shown the strongest growth YTD of all funds in the analysis.
Passive Fund Performance versus Bitcoin — As at 31 March 2019
Source: Crypto Fund Research, SwissOne.Capital
As the market matures, we are likely to see this dynamic proliferate (the decoupling of Bitcoin performance relative to alt coins) and therefore performance between these funds diverge even further.
We conclude from these findings that an equal weight fund with more than 30 constituents would outperform the market and it peers in this decoupling environment.
There is a long list of active funds outside of the US mainly constructed out of the hedge fund industry (see appendix below). As discussed above, many of these funds are yet to go live or have in fact shut up shop. Those that are live are not so forthcoming with fund performance unless you can show you are a serious investor. Therefore, the performance stats for these funds are limited (as show in this table below).
However, for the intents and purposes of this analysis we have included the performance of active funds from the Iconomi website as well. The funds are tokenised and not registered or regulated funds in any way however useful for a showing of active strategies.
Active Fund Performance — As at 31 March 2019
Source: Iconomi, Company websites, SwissOne.Capital
Interestingly, the mean performance of the active strategy funds has outperformed the passive peers’ mean on a year-to-date and 6-month to date basis. We found that in general active strategies had a greater exposure to alt coins relative to Bitcoin. Therefore, this is most likely the common driver of this outperformance in the short term because over the 12-month period to date the passive peers outperformed.
As in traditional assets, the question is always asked can manager outperform the market in the long term?
Solidium Prime is also an equal weighted index fund however it carefully selects the 25 coins to be included. In general, the remaining active funds take relatively significant exposures to the likes of Bitcoin and Ethereum compared to Solidium. This also begs the question as to the significance of the equal-weighted strategy on the outperformance of the fund in the shorter term.
We found that eight constituents were found in more than 80% of the funds analysed. These included:
4. Bitcoin Cash
The table below shows the performance of the top 8 held constituents of the funds analysed and the performances for the relevant time periods (31 March 2019 ended).
The best performing coin for the 12-month period to date was EOS with -29.3% while Litecoin has out-shone the market year to date as well as 6-months to date with +102.7% and -1.1%, respectively.
Other Performance Drivers
We found that only 3 live funds marketed the fact that they participate in our income generating activities using the underlying coin holdings. These mechanisms include: Actively staking, Airdop participation and Masternode registration. Crypto 20 specifies which coins it actively participates in for additional income streams, namely, NEO and Dash. Bitwise and Cyber Capital does not specify which coins however openly markets the fact it actively pursues additional forms of income using the above mechanisms.
SWISSONE INDEX MODEL PORTFOLIO
The SwissOne model portfolio performance post the crypto bubble outperformed its peers significantly in the most recent 6-month period to date. As the market matures and alt coin projects come to market with use cases and live products, the fundamentals improve resulting in the underlying coin prices outperforming the more established and larger market cap coins.
This is why including the top 50 coins is important. The portfolio strategy encapsulates a larger portion of the blockchain industry. Furthermore, the rebalancing to equal weight side of the equation ensures these strong performances are significant to the growth of the fund.
The drivers behind the strong out-performance of the SwissOne model portfolio during the 6-month period to date of +8.4% over the peer average, points to the price performance of coins with strong fundamentals that bucked the downward trend during November 2018. The exposure to these projects was significant enough to make a difference to the performance of the fund.
Source: Coinmarketcap, EOD Historical data, SwissOne.Capital
The strategy holds its own during the strong bull markets as well as it encompasses the significant growth potential of the larger alt coin projects. The re-balancing on a monthly basis ensures that the Fund always consists of the most successful projects with a meaningful impact.