The Bitwise Crypto Industry Innovators ETF (BITQ 6.45%) gives investors exposure to growth stocks that derive most of their revenue from cryptocurrency-related businesses. However, with Bitcoin (BTC 8.57%) down 20% over the past year, some investors may be feeling the jitters, especially with most of those losses happening over the past week.
Despite Bitcoin's rocky start, Bitwise's ETF is actually flat year to date and almost tripled from trough to peak last year. Even with Bitcoin's weaknesses to start the year, this ETF looks promising.
It's actually an AI ETF
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Although the Bitwise Crypto Industry Innovators ETF touts itself as a crypto fund, it's actually an AI ETF. Eight of its top 10 holdings are crypto mining companies that are pivoting to AI infrastructure for long-term revenue growth.
NYSEMKT: BITQ
Key Data Points
Iren is the largest position, making up almost 15% of the fund's total assets. Applied Digital and Cipher Mining make up more than 12% of the fund's assets combined. These three companies have already secured multiple deals with tech companies that want to scale their AI ambitions, and they have the infrastructure to support additional deals.
Coinbase Global and Strategy are the only two crypto stocks on the list that aren't crypto miners undergoing AI pivots.
Five of the top 10 positions have more than doubled over the past year, and all of those top 10 positions make up roughly two-thirds of the fund's total assets. If the AI trend gains momentum, the Bitwise fund should continue to do well.
The expense ratio is excessive
The Bitwise Crypto Industry Innovators ETF has a 0.85% expense ratio, and that's a pretty big deal. It means that someone with $10,000 in the fund pays $85 in fees each year. Those fees go up if you invest more money or your holdings gain value.
That's pretty excessive since you can find a bunch of index funds with expense ratios below 0.1%. However, it's also important to consider that this fund is very easy to replicate. It has only 30 equity holdings, and some of them don't significantly impact the portfolio. For instance, Mastercard accounts for only 1% of the portfolio, giving it little influence on the fund's direction.
The high expense ratio means you can save money by cherry-picking the fund's top growth stocks and using extra cash to buy index fund exposure, which can provide sufficient diversification. Most people won't mind the expense ratio if the fund outperforms the S&P 500 by a wide margin, but it's flat year to date. You're still stuck with the expense ratio, regardless of how it performs.
