The first prediction market exchange traded fund (ETF) has arrived, but it may not be what casual observers of the ETF industry and yes/no exchanges were expecting.
Tema ETFs has introduced the Tema Trading & Prediction Markets ETF (CBOE: DICE), an actively managed fund that holds shares of public companies involved in the prediction market ecosystem as well as stakes in a pair of privately held yes/no exchange giants.
“The Tema Trading & Prediction Markets ETF (DICE) invests in a new generation of financial-market innovators spanning prediction markets, trading platforms, data providers, and other critical market infrastructure,” according to the issuer.
The new ETF’s two largest holdings are stakes in two of the dominant prediction market operators, including Polymarket, both of which are closely held entities. Those positions are attained through special purpose vehicles (SPVs) — a strategy Tema has employed with some of its other funds.
Rolling the DICE
DICE debuts at a time when investor enthusiasm — both professional and retail — for prediction markets is high, but also as some of the industry’s largest pure plays remain private companies.
Still, the event contract ecosystem is broadening and DICE taps into that theme as highlighted by the fact the new fund has 39 holdings. Publicly traded constituents include Robinhood Markets (NASDAQ: HOOD), Polymarket investor Intercontinental Exchange (NYSE: ICE) and IG Group (LON: IGG), which recently announced its acquisition of Underdog.
The point is DICE has some flexibility when it comes to what stocks can be included in the new ETF, but the issuer clearly defines what makes a “trading and prediction market company,” indicating DICE holdings will be germane to this industry.
The issuer says a prediction market firm “is a company that, at the time of investment, derives at least 50% of its annual revenue from products or services that provide infrastructure, software, data, or other financial instruments relating to traditional financial markets or prediction markets.”
DICE ETF Has First-Mover Advantage
DICE may be the beneficiary of a first-mover advantage, which is often coveted in the ETF arena, as it is the first ETF dedicated to the prediction market segment. That doesn’t necessarily mean regulators will swiftly approve other prediction ETFs.
In fact, filings for those funds are piling up because the Securities and Exchange Commission (SEC) views the intersection of the ETF wrapper and event contracts as a “novel” structure and one worthy of deeper examination.
The DICE ETF avoided that controversy and delays in coming to market because it doesn’t hold event contracts. It holds equity, making its approach basic and understandable to a broad swath of investors. The new ETF charges 0.75% per year, or $75 on a $10,000 investment.