Franklin Templeton debuts new crypto SMA amid bitcoin ETF hype

After debuting a bitcoin ETF and eyeing the launch of an ether-focused counterpart, Franklin Templeton also continues to build out another segment of crypto products.

The fund giant, with more than $1 trillion in assets under management, has launched the Franklin Templeton Digital Asset Dynamic BTC/ETH separately managed account (SMA), the company said Tuesday.

SMAs offer a nuanced approach to investing, allowing investors greater customization in terms of asset diversification and tax optimization strategies. In the crypto realm, SMAs offer investors exposure to a range of exposures that go beyond bitcoin — currently the only crypto asset that US ETFs can hold directly.

The actively managed product seeks to outperform a market cap-weighted portfolio of bitcoin and ether. It is to be available for registered investment advisers (RIAs) and other US wealth managers on Eaglebrook Advisors’ SMA platform. Anchorage Digital is set to custody the assets.

Franklin Templeton’s latest SMA comes after the firm introduced two such investment vehicles in 2022.

Its Digital Assets Core SMA invests in 10 to 15 of the largest digital assets. The Franklin Templeton Digital Assets Core Capped SMA deploys a similar strategy, but caps its allocations to BTC and ETH at 25% of the portfolio each.

Franklin Templeton launched its Bitcoin ETF (EZBC) alongside a slate of competitors on Jan. 11. The fund currently ranks ninth of the 10 US spot bitcoin funds — in terms of assets under management — with $312 million as of market close Monday.

The spot bitcoin ETFs have so far notched total net inflows of roughly $11.3 billion. Industry watchers expect more wealth managers to make such funds available to clients in the coming months, catalyzing further growth in the segment.

Aside from diversified exposure, SMAs allow for investors to engage in tax-loss harvesting — purposefully incurring capital losses to offset capital gains taxes — and allow clients to own the underlying assets directly in their name at a qualified custodian, executives have said.

“[Crypto ETFs] allow more people to dip their toes in…in an easier way, which will in turn drive demand for our solutions from advisers because of the extra value prop via strategies and assets they can’t access in the ETF wrapper,” Eaglebrook CEO Christopher King told Blockworks last year.

While the Securities and Exchange Commission approved ether futures ETFs, investors in the US cannot access exposure to ether via an ETH that holds the asset directly, for example.

Franklin Templeton is one of several firms — along with BlackRock, Grayscale Investments, Ark Invest and others — with spot ether ETF proposals in front of the SEC. Potential future US ETFs holding crypto assets other than BTC and ETH are “a little bit out of sight,” Bitwise Chief Investment Officer Matt Hougan told Blockworks on a podcast in January.

It would be “a big leap” to get to a solana ETF, for example, Hougan added — noting there is not yet a regulated futures market for SOL.

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