Fidelity’s Bet on Crypto and the Metaverse

Fidelity’s Meta-Bet

February 16, 2022

Anyone viewing the Super Bowl this past weekend was inundated with ads for crypto and the so-called metaverse, an emerging term for the 3D, virtual reality-based internet of the future.

Fidelity must be hoping a lot of people were watching the Super Bowl, because it recently filed to launch two new ETFs on just those themes: The fund giant filed an application with the Securities and Exchange Commission late last month for exchange-traded funds called the Fidelity Metaverse Index ETF and the Fidelity Crypto Industry and Digital Payments ETF. Both will be subadvised by Geode Capital Management.

The 75-year-old investing behemoth has been keeping a weather eye on these trendy sectors for some time; CEO Abigail Johnson has been mining bitcoins herself for several years. Indeed, Fidelity filed last year with the SEC to launch an ETF that would invest directly in cryptocurrencies. That plan was shot down by the SEC in January; the regulatory agency has yet to approve any publicly traded funds that hold cryptocurrencies, though they have approved funds that trade bitcoin futures.

The new Fidelity crypto ETF will instead invest in the stocks of companies involved in cryptocurrency mining, blockchain technology, digital payments processing and cryptocurrency support services. It will not buy actual cryptocurrencies or take part in initial coin offerings, and should therefore face much lower regulatory hurdles.

We’ve covered crypto in the past, so you may well know our essential take by now: If you’re interested, be prepared for volatility and don’t invest more of your portfolio than you’re willing to lose. Those same principles apply to the new Fidelity crypto ETF. But we do think investing in public companies that benefit from the crypto boom, but which may not be entirely dependent on it, may be a less risky way to partake in some of the upside to the gold rush. Even unlucky miners need shovels.

As for the metaverse, investors’ interest in the sector was piqued last fall when social media giant Facebook made a surprise announcement that it would be rebranding itself Meta Platforms and investing $10 billion in the sector.

What that sector is exactly remains a matter of debate. Proponents paint a picture of a future in which we can interact with 3D virtual worlds just as easily as we can with the real one, our avatars working, playing and, most importantly, shopping just as we do in real life. But as anyone who’s had their screen freeze up in the middle of an important video call can tell you, today’s technology is nowhere near able to provide a seamless 2D experience in real time, much less 3D.

Fidelity seems to be hoping to get in the door early by investing in firms that will create the necessary technological advancements. The metaverse ETF will be actively managed and focus on companies “enabling the metaverse,” such as those creating computing hardware and components, digital infrastructure, design and engineering software, gaming technology and software, web development and content services, and smart phone and wearable technology.

There was already investor interest in the metaverse space prior to the big Meta Platforms move: In order to acquire the ticker “META,” the brand had to buy it from the Roundhill Ball Metaverse ETF (which had been the beneficiary of more than $700 million of inflows in the aftermath of the announcement). Two more existing ETFs have the same focus, with more on the way.

Should you follow the lead of Fidelity and the former Facebook? Maybe, maybe not. Getting in on the ground floor of the right metaverse company may be like investing in Apple or Amazon in ’97—but getting in on the wrong one may be like investing in Pets.com or Segway back in the day.

A pivot toward the metaverse appears to be one of the factors that drove Meta’s historic $230 billion-plus dive in its stock price earlier this month—a drop which hit Fidelity’s flagship $313 billion Contrafund particularly hard. As with crypto, the metaverse sector may well be a fun speculative play. But we wouldn’t bet the house on it quite yet.

Chart of the Week: Making Up for Poor Timing

We monitor a wide range of data to form our outlook on the market and the broader economy—every other week, we’ll spotlight one indicator our analysts have found informative. 

Director of Research Jeff DeMaso By Director of Research Jeff DeMaso

I thought I was getting a jump on things by contributing to my nine-month-old son’s 529 plan at the start of the year. Then I caught myself thinking: If only I had waited a month or simply been a little slower to get my act together, I could’ve bought in at lower prices!

It’s a normal reaction, but ultimately the wrong one. Over the course of time—and in this case, I’ve got about two decades to go before the little guy heads off to college—these short-term timing frustrations barely register. What matters is that I’m putting that money to work in the markets.

To reassure myself (and you) that this is true, I looked back over the last 30 years and compared two investors. One invested $1,000 into Vanguard’s 500 Index fund each year on the last trading day of the year without fail. The other investor was quite unlucky and invested their $1,000 into the index fund at the high point each and every year. After 30 years, the year-end investor’s portfolio was worth more than $200,000. The unlucky investor’s portfolio? Nearly $193,000. That’s only a 4% difference in end value—not bad at all for 30 years of bad luck!

Long-term investment success is about spending time in the markets, not timing the market—and regular contributions to your account can take away the sting of buying just before one of the market’s periodic dips.

Investing discipline pays off
Note: Chart shows growth of a hypothetical $1,000 initial and subsequent annual $1,000 investments in Vanguard’s 500 Index fund from the end of 1991 through 2021 (sum of contributions in this scenario was $31,000). The year-end investor line was calculated by adding the $1,000 at the end of each year, while the ‘unlucky’ investor line was calculated by adding the $1,000 at the fund’s highest price each year. Sources: Morningstar, Adviser Investments.

Podcast: Your Bond Questions Answered

Rising inflation and the prospect of rate hikes have been a one-two punch to the bond markets this year—and fixed-income investors may be feeling the pain. In this kind of environment, why own bonds at all? Our experts have that answer and more. They discuss:

  • The role of bonds in a portfolio during periods of volatility
  • Why Fed hikes don’t always decimate bond returns
  • Whether TIPS are a good alternative to traditional bonds in the current market environment
  • Why muni bonds may be in better shape than you think

A glance at the headlines might make you want to run for the hills when it comes to fixed-income investing in 2022. But that doesn’t mean bonds don’t have a key role to play in your portfolio. Listen now to find out why.

Adviser Investments’ Today’s Market Takeaways

There’s no shortage of hyperbolic headlines and provocative punditry in the financial media. But you won’t find such hysterics here. In Today’s Market Takeaways, members of our investment team provide timely videos that clearly and concisely explain what we’re seeing in the markets.

In our recent Market Takeaways, Vice President Steve Johnson talked about how steep the Fed’s next hike might be, while Senior Research Analyst Liz Laprade discussed the possible market fallout from a Russia-Ukraine conflict.

We hope you find these episodes engaging and accessible. If there are any topics you’d like us to address, please send an email to info@adviserinvestments.com!

About Adviser Investments

Adviser is a full-service wealth management firm, offering investment managementfinancial and tax planningmanaged individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFs, socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868.


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