Fund update: R-co Thematic Blockchain Global Equity — November 2023

Uptober effect

In October, equity markets pursued their correction, as long duration yields increased and heightened geopolitical tensions deterred investors from traditional risk assets. Digital assets investment products however saw significant inflows globally, with US$325m invested during the last week of October alone. This marked the highest weekly inflows since July 2022⁽¹⁾. It likely supported digital assets positive price action and confirmed again this year the “Uptober effect” and digital assets correlation with gold, back in positive territory since November last year.

On the portfolio management side, the Digital Assets / Fintech bucket was unsurprisingly the best performance contributor in October. This was led by Galaxy Digital, as market anticipates sooner than later spot digital assets ETF approval by the SEC. In such cases, this would benefit the company directly, as they applied along with Invesco for a similar product. Rumors let market anticipate an approval by the end of the year or early 2024 at the latest. As of today, two spot digital assets ETF files have reached US clearing house DTCC registration stage: BlackRock’s and Invesco Galaxy’s.

The earnings season started and showed a market with heightened sensitivity to fundamentals, likely searching for bottom-up signals to confirm what most likely economic outlook will drive 2024. Portfolio companies who published in October were overall relatively protected. Seven out of the nine portfolio companies that reported this month published better-than-expected earnings, for the likes of Nike who benefited from better-than-expected inventory management. On the downside, disappointing results and negative news were particularly severely sanctioned.

In this context, we purchased some shares of Okta on weakness. The software company was strongly sanctioned by the market, following a security breach on their support case management system. We believe the company reputation will recover in the medium term as the integrity of its core offering was not impacted and competition still lags on identity products vs. Okta. We took some profits on Galaxy Digital and BC Tech, as these two digital assets industry leaders showed stellar performance during the month. At month-end, fund’s equity exposure was 99.7%⁽²⁾.

Industry news to watch:

Announcements made this month by established companies of blockchain based innovations continued to pertain to various sectors of the economy and enterprise use-cases. Among many others:

• Deutsche Bank and Standard Chartered’s SC Ventures complete first stablecoin swaps on Davos launched Universal Digital Payments Network (UDPN).
• UBS Asset Management launches first blockchain-native tokenized Variable Capital Company fund pilot in Singapore, as part of the wider Project Guardian led by the Monetary Authority of Singapore.
• The Depository Trust & Clearing Corporation (DTCC), leading provider of post-trade clearing and settlement services in the US, signed definitive agreement to acquire blockchain-based firm Securrency. “Acquisition will position DTCC to provide global leadership in bridging best-in-class industry practices with advanced digital technology to encourage adoption of digital assets”.
• Amazon introduces NFT to its Prime Gaming subscribers. The leading e-commerce platform also announced last March the upcoming launch of an NFT dedicated marketplace.
• FamilyMart, second largest convenience store network in Taiwan, launches blockchain-based loyalty program in collaboration with Circle and BitoGroup.