FBEQ charges 9 basis points and FIBT 19, and both begin at 95% stocks and 5% bitcoin. FBEQ's index trims the bitcoin sleeve back to 4.5% whenever it clears 5% at a quarterly review, and neither fund holds bitcoin itself.
Franklin Templeton listed two exchange-traded funds on Nasdaq on Thursday that take the dividends their stock holdings pay and buy bitcoin with them, instead of buying more shares of the companies that paid. The Franklin U.S. Equity Bitcoin DRIP Index ETF trades as FBEQ with an annual fee of 9 basis points. The Franklin U.S. Innovation Bitcoin DRIP Index ETF trades as FIBT at 19 basis points.
Both start at 95% equities and 5% bitcoin. FBEQ tracks the VettaFi U.S. Large-Cap 500 Bitcoin DRIP Index, which holds about 500 of the largest U.S. companies weighted by float-adjusted market capitalization and carried 499 stocks at the end of September, concentrated most heavily in information technology. FIBT tracks the VettaFi U.S. Innovation 100 Bitcoin DRIP Index, the 100 largest U.S. issuers listed on Nasdaq with financial companies excluded.
The reinvestment runs on a schedule rather than on a view. Each dividend, regular or special, buys bitcoin at the market open on the day after the ex-date, according to the registration documents. Franklin's own announcement describes the reinvestment and a quarterly reassessment of the bitcoin weight under rules meant to keep bitcoin a secondary holding.
The published rules cap the bitcoin weight rather than hold it at a target. At each quarterly rebalance any bitcoin weight above 5% is trimmed back to 4.5%. If bitcoin passes 20% between rebalances, it is cut to 4.5% within two business days and the proceeds return to stocks. Both thresholds are published for FBEQ's index, and neither source confirms them for FIBT's. The bitcoin sleeve therefore grows from dividend income and from appreciation inside a quarter, and is sold down whenever it clears 5%, so a sustained rally in bitcoin produces realized sales rather than a larger position.
Neither fund holds bitcoin on-chain. Exposure comes from shares in an affiliated bitcoin exchange-traded product, from bitcoin futures and options, and in some cases from depositary receipts held through a Cayman Islands subsidiary. The announcement does not name the affiliated product, and neither source says whether its expenses sit on top of the 9 and 19 basis points. That is the number an investor would need to compare these funds with other routes to the same exposure, and a headline management fee can sit well below the total: Pando's Hong Kong solana fund charges 0.60% while estimating total ongoing charges at 1.60% a year.
Dina Ting, senior vice president and head of index investments at Franklin Templeton, said bitcoin “has matured as an investable asset” and that “A systematic approach to building exposure is one way to address this next stage of adoption.” Jeff Masom, head of U.S. distribution and global wealth management private markets, said the funds expand “the ways we can help clients incorporate digital assets within their broader portfolios.” Ting manages the funds with Hailey Harris, Joe Diederich and Basit Amin. Franklin Advisory Services runs FBEQ, with Franklin Templeton Institutional as sub-adviser.
The registration papers went to the Securities and Exchange Commission on October 22, a week before the listing. Filings in June had carried neither tickers nor fees.
Funding a bitcoin position out of income rather than out of a reallocation sidesteps the question that has kept the asset out of institutional model portfolios, which is how much to hold. JPMorgan attached a 10% long-term annual return assumption to bitcoin this month, the first time the figure appeared in 31 editions of the bank's long-term planning document, while still leaving the asset out of the correlation models that decide portfolio weights. A fund that caps the position at 5% and feeds it with dividends has made that sizing decision for the buyer.
Index providers have been moving in the other direction on corporate balance sheets. MSCI adopted a methodology this month that makes companies mainly holding investments rather than operating a business ineligible for its Global Investable Market Indexes, with a deletion list due November 11. Franklin's indexes put the bitcoin exposure in a sleeve the fund controls, rather than inheriting it from whatever its constituents hold.
Both funds are newly organized with no operating history. Franklin's disclosures list price volatility, regulatory uncertainty, operational disruption, index and technology failure, blockchain events and cybersecurity among the bitcoin risks, and state that both funds are non-diversified, which can make them more sensitive to events at a single issuer.
