TIPs #2: crypto indices & ice to eskimos
It's T.I.P. as in Terrible Investment Products
Hi! It’s George from Investorama, your guide to the future of investing - without the hype.
This is the series where I read the small print and distil my experience as a recovering banker and marketer to flag investment products.
The below products and all the T.I.Ps in this newsletter are not judged by their potential outcome. It’s about the way they are built and marketed.
#1 Securitize S&P Cryptocurrency Large Cap Ex Mega Tokenized Fund
I stumbled across this ‘fund’ launched a couple of years ago by Securitize, a platform that promises to deliver:
Access the most exclusive asset class in the world - private markets.
Though there’s a lot to say about the platform (this is an offering about a public asset class in platform for private markets!), the fund (it’s tokenized!), and the way it’s marketed, I will skip all that for now. I want to focus on the index: S&P Cryptocurrency Large Cap Ex Mega Tokenized Fund.
What is it:
The S&P Cryptocurrency LargeCap Ex-MegaCap Index is designed to track the larger constituents of the S&P Cryptocurrency Broad Digital Market Index, excluding the constituents of the S&P Cryptocurrency MegaCap Index.
It’s a mouthful, but you can find in the small print that it aims to give exposure to the broad crypto market minus Bitcoin and Ethereum.
What makes it a terrible index:
The components and their weights are not available. You can’t find how many are included on the S&P website, although Securitize indicates they are 35. You can’t know what you invest in.
I assume it excludes stablecoins, but if the information is out there, it’s well hidden.
Indexing crypto is complicated. The methodology is float-adjusted market capitalization (FMC) weighted, subject to a single constituent weight cap (undisclosed). This is problematic and debatable, but there’s a reason why the methodology, although standard in stocks, is not widely adopted in crypto. There are multiple issues. One of them is that tokens can be distributed continuously and in much larger proportions than in the equities market, creating deflationary pressures.
Perhaps we should create a category for Terrible Indices, but due to the lack of transparency and poor construction of the index by the venerable S&P, this product belongs firmly in my T.I.Ps.
#2 HOME REIT
😱I have invested in this one! More info here.
What is it:
A property company which invests in the provision of sheltered housing for homeless people throughout the United Kingdom.
The emphasis is mine.
What makes it a terrible product:
It starts with the definiton. Would you invest in a company selling ice to Eskimos, but to top it up it looks like it’s a fraud
But there’s more:
In December 2022, the short seller Viceroy Research published a damning report highlighting: poor management, serious governance issue, accounting irregularities, tenants not paying rent, etc.
In January 2023, the UK crime agency announced a criminal investigation for bribery.
I owe you an explanation about why I invested. It took some soul searching, but in short:
In 2021, I wanted to diversify away from the stock market and was looking for “real assets’. I received a timely offer from the investing app PrimaryBid for HOME
it’s a small allocation for diversification, and I put it in the bucket of “sh*t happens”,… but still, I feel silly.
no due diligence: no excuse there, but PrimaryBid was only available on a phone. You had to read everything on a small screen!
stories in my head: This is the most important one. I liked the idea of ‘social housing’, and the mission statement of the company is so outlandish that I thought it was subsidized or guaranteed by some kind of government agency.
I hope that I won’t be including too many of my own investments in the T.I.Ps selection, but in a world where most investors showcase their wins and hide their losses, it’s important to have a candid and transparent approach. Mistakes are the best teachers.
Hope you enjoyed this new format. If it’s been forwarded to you and you want to receive it directly in your inbox, subscribe here.
If you’d like me to review an investment product that you consider or would like to share a T.I.P., please hit reply. Thanks