Franklin Templeton has successfully completed the ultimate regulatory requirement before rolling out a pair of exchange-traded funds that transform stock dividends into bitcoin.
On October 22, Franklin Templeton filed a Form 8-A with the Securities and Exchange Commission to list shares of the Franklin US Equity Bitcoin DRIP Index ETF and the Franklin US Innovation Bitcoin DRIP Index ETF for trading on the Nasdaq. A prospectus submitted on the same date indicates an effective date of October 27.
The initial submissions for both investment vehicles appeared in June absent of tickers and fees. Four months later, all particulars are available.
How the funds work
The Equity fund, trading under the ticker FBEQ, follows the VettaFi US Large-Cap 500 Bitcoin DRIP Index. This index comprises the 500 largest United States corporations by market capitalization, weighted according to float-adjusted market cap.
As of September 30, it included 499 equities varying between $10.2 billion and $5.5 trillion in valuation, with a heavy weighting toward information technology.
At launch, the index assigns 95% to these equities and 5% to bitcoin. Every dividend distributed by these corporations, whether regular or special, gets converted into bitcoin purchases at the market open on the day following the ex-date. The portfolio’s bitcoin allocation expands with each distribution.
A standard dividend reinvestment plan, known as a DRIP, purchases additional shares of the issuing company. Franklin’s alternative channels that cash directly into bitcoin.
For an investor, the dividend flow originating from America’s premier enterprises transforms into an automatic recurring bitcoin acquisition, completely bypassing the need for exchange accounts, private wallets, or custody management.
The bitcoin holdings feature strict boundaries. During every quarterly rebalancing, any allocation exceeding 5% is reduced down to 4.5%. Should bitcoin surpass 20% of the index between scheduled rebalances, it is brought back down to 4.5% within two business days, with the resulting capital directed back into equities. Consequently, the product functions as an equity fund containing a bitcoin component rather than a standalone bitcoin fund.
This ETF does not maintain direct on-chain bitcoin custody. Instead, exposure is gained through bitcoin exchange-traded products, which include Franklin’s proprietary spot fund, along with bitcoin futures, options, or depositary receipts, operating in certain instances via a Cayman Islands subsidiary.
FBEQ features a 0.09% expense ratio accompanied by zero 12b-1 fees. Franklin Advisory Services oversees the fund, while Franklin Templeton Institutional acts as the sub-advisor. Dina Ting, Hailey Harris, Joe Diederich, and Basit Amin operate as the portfolio managers.
The Innovation fund utilizes the identical strategy applied to the VettaFi US Innovation 100 Bitcoin DRIP Index, which selects from the 100 largest non-financial firms listed on the Nasdaq.
A deeper bet on bitcoin
Franklin Templeton applied for a spot bitcoin ETF back in September 2023 and subsequently debuted it as EZBC in January 2024. During April, the asset manager purchased 250 Digital and established Franklin Crypto, a dedicated institutional digital asset division. Jenny Johnson, the CEO of Franklin Templeton, has stated that blockchains pose a greater threat to Wall Street’s fee structures than to its underlying technology.
These DRIP funds broaden that approach to cater to investors who might otherwise never acquire bitcoin independently. A retiree maintaining a standard S&P 500-style portfolio inside a brokerage account can utilize FBEQ to allow dividend payouts from companies she already owns to accumulate a meaningful bitcoin allocation over the years.
The official prospectus cautions that participants can incur financial losses, and that fluctuations in bitcoin valuation may impact the net asset value of the fund. Whether this value proposition appeals to Franklin Templeton’s intended demographic will become apparent following October 27.
Originally published at https://bitcoinmagazine.com/news/franklin-templeton-clears-final-hurdle.
