OdehaTracking the Rapid Transformation of Finance Through New Technology: From digital payments to decentralized financial networks, new technologies are revolutionizing the way individuals and institutions manage money globally. What was once the domain of brick-and-mortar banks and financial firms is increasingly moving online through innovative startups deploying blockchain, artificial intelligence, and cloud platforms.
To help investors understand and capitalize on these transformational trends, Bloomberg and Grayscale Investments recently launched the Bloomberg Grayscale Future of Finance Index. In this blog post, we’ll explore what this benchmark aims to track, how it identifies emerging leaders at the forefront of financial technology, and why it provides a compelling investment vehicle for gaining exposure to disruption in the finance industry.
Understanding the Index Objective
The Bloomberg Grayscale Future of Finance Index serves as the underlying index for the Grayscale Future of Finance exchange-traded fund, which began trading publicly in 2021. Its objective is to track the performance of equity investments in companies driving innovation across several transformative sectors, including:
– Digital Payments: Firms developing modern payment processing and currency systems leveraging blockchain, AI, 5G and other technologies.
– Decentralized Finance: Startups creating protocols for decentralized exchanges, lending platforms, stablecoins and other financial applications in crypto networks.
– Investment Services: Wealthtech companies rolling out robo-advisors, digital brokerages, and portfolio management software targeting Gen Z and Millennial investors.
– Banking Infrastructure: Finches upgrading legacy bank systems through cloud platforms, AI-based risk assessment tools, and cyberscurity solutions.
By capturing these emerging leaders powering the future of money, banking, trading and investment management, the index serves as a benchmark for exposure to disruption transforming century-old financial paradigms.
Methodology for Index Constituent Selection
To identify companies actively driving financial innovation, Bloomberg and Grayscale developed a proprietary methodology examining quantitative and qualitative factors on an annual basis:
– Revenue Threshold: Companies derive significant revenue (at least $25 million annually or $1 million quarterly) from designated future-of-finance categories.
– Innovation Evaluation: Third-party research firms assess each company’s technology, strategy, leadership, and competitive positioning as innovation drivers.
– Advisory Panel Input: An independent board of financial experts provide input on innovative companies and trends reshaping the sector annually.
– Liquidity Screening: Only shares trading on major U.S. or international exchanges eligible for index inclusion after meeting other criteria.
By applying this disciplined, multi-faceted analysis, the index aims to select the most promisingly innovative companies transforming finance rather than passive market-cap weighted constituents.
Current Index Constituents
After its 2021 reconstitution, the Bloomberg Grayscale Future of Finance Index tracked 50 global equities across 12 countries innovating financial services delivery. Major holdings spanned:
– Digital Payments: PayPal, Block (Square), Adyen, Worldline, PagSeguro Digital
– Decentralized Finance: Coinbase, Microstrategy, Galaxy Digital Holdings, Bakkt Holdings
– Wealthtech: Robinhood Markets, Solo Brands (DTC e-commerce), E*Trade, Wealthfront
– Banking Tech: Fiserv, Fidelity National Information Services, Anthropic (AI), Bill.com
Providing broad-based exposure to emerging leaders harnessing technologies like blockchain, open banking APIs, robo-advisory and more to upgrade traditional institutions from within and outside.
Benefits of Tracking with an Index Fund
For investors seeking consolidated access to disruptive financial technology trends, the Bloomberg Grayscale Future of Finance Index provides several key advantages over cherry-picking individual companies:
– Diversification: With 50+ holdings, it avoids overconcentration risk compared to betting on single firm successes or failures.
– Lower Cost: Exchange-traded fund structural costs remain below actively managed funds due to passive investing approach and limited research expenses.
– Expert Selection: Third-party analysts and experts determine constituents annually based on quantitative and qualitative innovation assessments.
– Tax Benefits: As an ETF, the fund provides superior tax treatment over standard mutual funds, distributing capital gains just once annually.
– Transparency: Full index constituent weights and quarterly/annual performance disclosed for benchmarking returns against designated categories.
Overall, the inaugural Bloomberg Grayscale Future of Finance Index fund delivers efficient, low-cost access and exposure to promising innovators transforming the global payments, banking and investment landscapes.
Conclusion
As emerging technologies like AI, blockchain and cloud computing accelerate financial disruption, innovative indexes like the Bloomberg Grayscale Future of Finance Index play an important role in identifying the most transformative companies leading this evolution.
By providing a dynamically-managed benchmark tracking public firms harnessing new technologies, algorithms and business models to transform legacy systems and delivery of financial services, the index ETF offers investors consolidated exposure to powerful long term trends. Its multi-faceted selection methodology and expert oversight helps isolate the true leaders most effectively upgrading the future of money, banking and investing globally. Overall, the index represents a compelling investment vehicle for gaining diversified exposure to technology transforming finance worldwide.
Odeha