Fintech is rarely far from the headlines, with financial technology companies seizing the spotlight through varying means, ranging from high-flying initial public offerings to regulatory inquiries and periods of substandard performance in bear markets. For many investors, the right way to bet on financial technology companies is via an exchange-traded fund, or ETF, which can offer diversified exposure.
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There aren’t many pure fintech ETFs, said Roxanna Islam, associate director of research at fund research firm VettaFi. Only about five are on the market, but another two dozen funds specialize in the adjacent field of cryptocurrency, investing in either crypto-related stocks or financial derivatives (no ETF holds Bitcoin directly, she said). Just as in the market for individual stocks, the fintech ETF world breaks down into a split between relatively traditional financial companies that are adapting to new information technologies and more aggressive companies and funds involved in crypto.
Like their counterparts among individual stocks, performance of the fintech ETFs in 2023 has been mixed. The best this year has been the Ark Financial Innovation ETF, which has risen more than 43% in 2023 through June 16 as it rebounds from the bear market in technology stocks and crypto.
Here are six of the best fintech ETFs to buy now:
— Ark Fintech Innovation ETF (ticker: ARKF)
— Capital Link Global Fintech Leaders ETF (KOIN)
— Global X FinTech ETF (FINX)
— BlackRock Future Financial and Technology ETF (BPAY)
— ETFMG Prime Mobile Payments ETF (IPAY)
— Fidelity Crypto Industry and Digital Payments ETF (FDIG)
Ark Fintech Innovation ETF (ARKF)
The biggest fintech fund is this entry from star manager Cathie Wood’s Ark Investment Management in St. Petersburg, Florida, with more than $850 million under management.
Ark says its target areas include firms that enable transaction innovation, new payments platforms, blockchain technology, or firms which act as new intermediaries. Examples from the portfolio include MercadoLibre Inc. (MELI), which is acting as a payment system for underbanked small businesses in Latin America; Twilio Inc. (TWLO), whose products help traditional banks communicate with customers across platforms like social media and email; and Block Inc. (SQ) and Shopify Inc. (SHOP), which both help small businesses in the U.S. with payment processing.
The fund has risen rapidly this year, but is still essentially flat since its 2019 inception. It has been hit by the sharp decline since 2021 in stocks including Shopify and Block. It’s also a big holder of crypto currency exchange Coinbase Global Inc. (COIN), which was sued by U.S. securities regulators June 6, and holds a stake in retail-focused brokerage Robinhood Markets Inc. (HOOD), which gets a meaningful chunk of its revenue from crypto trading.
ARK’s fund is actively managed, rather than passively mimicking the movements of a market index, Islam said, so it has a relatively high annual management fee of 0.75%.
Expense ratio: 0.75%
Capital Link Global Fintech Leaders ETF (KOIN)
Since there are so few fintech ETFs, some of them have very low assets under management; investors should know that this tends to mean somewhat lower liquidity. Such is the case with KOIN, a $14 million fund that divides itself into two buckets: One for companies that use fintech to make their existing businesses work better, and another for technology firms that actually provide the code and hardware to set up fintech systems.
That means the fund’s top holdings include unexpected names like Amazon.com Inc. (AMZN), Oracle Corp. (ORCL) and Microsoft Corp. (MSFT), none of which is a finance company or even a fintech player, per se. Lower down the list come companies like Intercontinental Exchange Inc. (ICE), VMWare Inc. (VMW) (whose products expedite online banking), SAP SE (SAP) (whose product line includes software that banks use for risk management) and Intuit Inc. (INTU), maker of TurboTax and QuickBooks software and services.
KOIN has been a much less volatile ride than the ARK fund, but also has a relatively high management fee of 0.95% of assets annually. It’s up 9.6% this year through June 16.
Expense ratio: 0.95%
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Global X FinTech ETF (FINX)
This roughly $390 million fund based in Hong Kong is indeed global: Its biggest holding is Dutch payment processor Adyen NV (ADYEY). But it has been a highly volatile way to play the fintech transition, especially in recent years.
Adyen isn’t the source of the volatility: Its shares are up more than 25% over the last year. But the FINX fund has had large losses since 2021 on formerly hot companies like the crypto-adjacent Block and on PayPal Holdings Inc. (PYPL), which has been hurt by rising competition for consumer e-payments. Aniket Ullal, head of ETF data and analytics for CFRA Research, says the fund “provides more targeted fintech exposure than its peer ARKF because the latter has significant weighting in non-fintech stocks like Shopify and DraftKings.”
Unlike ARK’s fund, FINX is nominally tied to an index, but that doesn’t make much of a difference in fees.
Expense ratio: 0.68%
BlackRock Future Financial and Technology ETF (BPAY)
A tiny fund from a giant company, BPAY manages $4.1 million, Islam says, with top holdings including Brazilian wealth manager XP Inc. (XP) as well as more conventional fintech names like payment processors Fidelity National Information Services Inc. (FIS) and Fiserv Inc. (FI), credit card issuers American Express Co. (AXP) and Capital One Financial Corp. (COF), and Wex Inc. (WEX), whose software helps automotive fleet managers track vehicles and spending on items like gasoline.
The fund launched last August, a rough time for fintech, contributing to shaky early returns. Its price is little changed in 2023, and shares are down more than 11% through June 16 since the fund’s inception.
Expense ratio: 0.7%
ETFMG Prime Mobile Payments ETF (IPAY)
IPAY, which manages about $430 million, is a play on the shift from credit card and cash transactions to digital and electronic systems, according to its sponsors at ETF Management Group. The company claims the addressable market of payments made on mobile and digital systems will grow at a compound annual growth rate of 30% between 2022 and 2032.
Its top holdings are dominated by credit card companies, with MasterCard Inc. (MA), Visa Inc. (V), Discover Financial Services (DFS) and American Express in the top eight. It also has PayPal from the emerging consumer payments world, and Block, which does both consumer and small-business payment processing. Fidelity National and Fiserv are also big holdings.
With a 0.75% expense ratio, the IPAY fund isn’t cheap. Performance has lagged this year’s market so far, gaining 8% through June 16 compared to the 14.8% year-to-date advance for the S&P 500. With so many credit card companies in the portfolio, performance is likely to track the growth of consumer spending. “It provides targeted exposure to listed payment processors like Mastercard, Visa and American Express,” Ullal says.
Expense ratio: 0.75%
Fidelity Crypto Industry and Digital Payments ETF (FDIG)
Investors who want a clear shot at the crypto trading and processing industries might like this fund, which includes crypto players like Coinbase and Block, plus bitcoin miners like Riot Platforms Inc. (RIOT), Hut 8 Mining Corp. (HUT) and Bitfarms Ltd. (BITF) among its top holdings. Launched last year, it has dropped below $18 per share from $22.63 on opening day. Like its peers the ProShares Bitcoin Strategy ETF (BITO) and VanEck Digital Transformation ETF (DAPP), the fund is subject to the regulatory scrutiny the Biden administration is training on cryptocurrency, Ullal says.
Expense ratio: 0.39%
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6 Best Fintech ETFs to Buy originally appeared on usnews.com
Update 06/20/23: This story was previously published at an earlier date and has been updated with new information.
