IDX said mutual fund wrapper allows more flexibility to manage the contract roll and the ability to close the fund to new investors
Head of ETF and mutual fund research at CFRA said he expects ETFs to be the primary vehicle to gain bitcoin futures exposure through funds

Crypto-focused quantitative asset manager IDX Advisors has announced the launch of the first US mutual fund designed to provide a risk-managed exposure to bitcoin futures.

The IDX Risk-Managed Bitcoin Strategy Fund (BTIDX) is different from other public offerings, as it specifically seeks to provide exposure to bitcoin while reducing the volatility and drawdowns, said Ben McMillan, the firm’s founder and chief investment officer.

“This is very different than a static, long-only exposure, which we believe does not make sense for many investors,” he told Blockworks. “We designed this product mainly for institutional investors and fiduciaries that are very risk-conscious and are looking for what we believe is prudent exposure to the asset class.”

The new fund expects to maintain bitcoin futures exposure of between 50% and 100% of the fund’s net assets, according to a recent regulatory filing. Its managers may drop this exposure to 25% during “stressed or abnormal market conditions,” the document notes, but will not go below 25%.

The offering may allocate up to 10% of the fund’s assets in other bitcoin-related investments, such as ETFs, but will not invest in bitcoin directly.

The announcement came the same day that fund managers VanEck and Global X launched bitcoin-linked ETFs. While VanEck’s Bitcoin Strategy ETF (XBTF) invests primarily in bitcoin futures contracts, the Global X Blockchain & Bitcoin Strategy ETF (BITS) invests in a mix of futures and the equity securities of blockchain companies.

Bitcoin futures ETFs from ProShares and Valkyrie Investments hit the market last month, with the former being the first of its kind to launch in the US. The ProShares Bitcoin Strategy ETF (BITO) has already grown to $1.4 billion assets under management.

McMillan said the BITO launch demonstrated an appetite for exposure to bitcoin in a vehicle offered by a registered investment company as defined in the 1940 Investment Companies Act, commonly known as the ‘40 Act.

The US Securities and Exchange Commission (SEC) approved ProFunds’ bitcoin futures-based mutual fund (BTCFX) in July. SEC Chairman Gary Gensler said in August that the agency would favor bitcoin ETFs filed under the ‘40 Act that were limited to bitcoin futures contracts traded on the Chicago Mercantile Exchange (CME).

“ProShares/ProFunds has both an ETF and mutual fund providing bitcoin futures exposure, and the ETF has significantly more demand and can be used by short-term traders,” said Todd Rosenbluth, head of ETF and mutual fund research at CFRA. “We would expect ETFs to be the primary vehicle to gain exposure through funds.”

ProShares’ bitcoin futures ETF is doing what it was designed to do, the IDX executive added, though the biggest issue with any futures-based product is the roll tax associated with maintaining exposure to the futures contracts over time.

“As a firm, we’re very experienced with navigating futures term structures,” McMillan explained. “One of the reasons we chose to launch this offering as a mutual fund — and not an ETF — is so that we could have more flexibility to manage the contract roll as well as the ability to close the fund to new investors if and when it makes sense.”

David Snowball, publisher of the Mutual Fund Observer, said that though managed futures funds are driven by research about their ability to outperform the market with little downside, many have seen poor performance.

Over the past three years, such offerings have returned 5.9%, with a Sharpe ratio — a measure of risk-adjusted return — of 0.39, Snowball added. Managed futures funds have returned 1% in the trailing 10 years, with a Sharpe ratio of 0.04.

“The vast majority of managed futures funds have been liquidated,” he said, “taking their dark records to the grave with them.”

The management fee on the fund’s investor and institutional share class is 199 basis points. The fund will initially be available through select platforms, including Fidelity, Interactive Brokers, Pershing, AXOS, Matrix and SEI.

The firm’s next fund launch will likely be its Risk Weighted DeFi Strategy, which will be a private placement trust seeking to track an index calculated by S&P Dow Jones.

“The innovation happening in the broader digital assets ecosystem, including [decentralized applications] and other [layer-1 protocols], very much reminds us of the internet in the ’90s,” McMillan said. “It’s a space we’re very excited about as asset managers and as developers.

To read Blockworks’ Q&A with McMillan last month, click here.