Fintech stocks have held the attention of institutional and individual investors for over a decade, and for good reason. This dynamic industry combines disruptive technological innovation with the lucrative field of financial services to produce tremendous market potential and the opportunity for above-average capital appreciation over time.
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In response to the growing popularity of fintech, Wall Street has developed a series of exchange-traded funds, or ETFs, that invest in fintech securities.
What Is Fintech?
The word “fintech” is an amalgamation of the words “financial” and “technology.” In the context of equity investing, it means shares of publicly traded companies that specialize in developing and marketing high-tech solutions that improve the efficiency and profitability of financial services firms.
Fintech companies serve the lending industry, Wall Street brokers, payment processing companies and others in the banking and investing sector by leveraging existing or emerging technologies. They may develop hardware, software and applications using technologies like blockchain, cloud-based computing, artificial intelligence (AI) and information technology.
Fintech ETFs are specialized investment funds that invest their client’s assets in fintech stocks. Fintech ETFs offer investors professional management and a diversified portfolio in a single security that trades on major stock exchanges just like individual common shares do.
In short: When you invest in fintech, you’re investing in the computerized, digital future of high finance.
Why Invest in Fintech ETFs?
The tech sector and the financial sector are large and important parts of the growing world economy. The fintech industry is expanding rapidly and has produced an exceptionally high growth rate over time.
If you’re looking to enhance your portfolio by combining the exciting and profitable area of tech innovation with the lucrative field of financial services, check out this list of seven of the best fintech ETFs to buy now:
— ARK Fintech Innovation ETF (ticker: ARKF)
— BlackRock Future Financial and Technology ETF (BPAY)
— Grayscale Future of Finance ETF (GFOF)
— Global X FinTech ETF (FINX)
— Capital Link Global Fintech Leaders ETF (KOIN)
— Fidelity Crypto Industry and Digital Payments ETF (FDIG)
— Amplify Emerging Markets FinTech ETF (EMFQ)
Ark Fintech Innovation ETF (ARKF)
ARKF is a $920 million ETF that’s managed by one of Wall Street’s most colorful and controversial investment managers: Cathie Wood.
ARKF is an actively managed fund with the objective of long-term capital appreciation. Cathie Wood is directly involved in the stock selection and allocation decisions of the fund. Every holding is a company that Wood believes in on the cutting edge of fintech advancement and innovation.
Be aware that ARKF is a somewhat aggressive fund. It holds foreign and domestic stocks that can be more volatile than the market as a whole. It features new technologies such as blockchain and cryptocurrency, which undoubtedly hold incredible potential but are still immature and risky areas to invest in.
As an example, Coinbase Global Inc. (COIN) is currently the fund’s number one holding representing 12% of ARKF’s assets.
BlackRock Future Financial and Technology ETF (BPAY)
BPAY is a relatively new fund in the iShares family of funds owned and operated by asset management giant, BlackRock Inc. (BLK). The fund was launched less than three years ago but has a place on our list because of the reputation for quality and the history of performance of the professional portfolio managers at iShares.
BPAY provides fintech ETF investors with broad exposure to stocks that invent, produce and sell the fintech solutions that are poised to disrupt the financial services sector. The fund focuses on the areas of payment processing, cloud-based and app-based banking, trading and investing, and insurance risk analysis.
The management team that runs BPAY cumulatively has more than 25 years of experience in financial services and technology investing.
Grayscale Future of Finance ETF (GFOF)
GFOF believes that the future of fintech is upon us and that the future is decidedly digital. The fund is run by Grayscale Investments LLC, a company that believes in the power and potential of crypto and invests its assets accordingly.
Robinhood Markets Inc. (HOOD), Coinbase and Paypal Holdings Inc. (PYPL) are the top three holdings in the fund right now. They cumulatively represent just under 24% of the fund’s AUM.
Investors looking to take a position in emerging leaders in the fast-growing fintech industry and who won’t shy away from digital assets should take a close look at GFOF.
The fund has $7.3 million in assets under management and, although not an income vehicle, has a current yield of 4.3% as of June 7.
Global X FinTech ETF (FINX)
Global X is an asset manager known for its innovation and somewhat aggressive management style. That makes the firm well-suited to manage FINX. This fund invests in companies that develop and implement high-tech platforms that help banks and other financial firms digitize their commercial operations.
The fund targets stocks that serve the insurance, investing, fundraising and consumer lending industries. It doesn’t, however, look to invest in old-school technologies. FINX seeks to own companies that it believes are on the leading edge of groundbreaking fintech development, especially digital and mobile tech solutions.
FINX is a $300 million global fund that owns stocks from around the world, including from countries considered emerging markets. This reflects Global X’s observation that, in some cases, less-developed nations appear to be adopting digital fintech solutions more readily than some developed nations.
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Capital Link Global Fintech Leaders ETF (KOIN)
KOIN currently has $13 million in assets under management. The relatively low AUM, however, need not trouble investors. There are not a lot of fintech ETFs on the market, and low AUM does not necessarily mean poor performance.
KOIN invests in two distinct areas of fintech. The first is financial companies that are consumers of fintech products and services. The second is companies that write the code, develop new technologies and manufacture the hardware that makes fintech systems work.
The result is a portfolio that may include some names you know, along with many you may never have heard of.
Investors should realize that KOIN is not a low-cost ETF. The fund has an expense ratio of 0.75%, which is on the higher side.
Fidelity Crypto Industry and Digital Payments ETF (FDIG)
FDIG is a $91 million ETF that, just as its name implies, focuses on cryptocurrency, fintech and the payment processing industry. As such, the fund lists Marathon Digital Holdings Inc. (MARA), Riot Platforms Inc. (RIOT) and TeraWulf Inc. (WULF) among its top holdings.
FDIG is an index fund that tracks the Fidelity Crypto Industry Digital Payment Index, which was designed and is maintained by Fidelity specifically for this fund and for other asset managers who wish to replicate it or use it as a benchmark.
The fund is not a cryptocurrency ETF, per se. Instead, it invests in stocks of companies that are related to crypto and blockchain technology, as well as firms that facilitate digital payment processing and international money transfers.
Because it is an indexed investment rather than an actively managed one, investors will benefit from the reasonable expense ratio of 0.39%
Amplify Emerging Markets FinTech ETF (EMFQ)
With only $2.1 million in AUM, the last fintech ETF on this list is also one of the smallest.
EMFQ is an index fund that is designed to track the EQM Emerging Markets Fintech Index. The index includes stocks that generate most of their revenue from fintech or fintech-related services such as peer-to-peer lending, money transfer, digital banking, payment processing and blockchain activities.
EMFQ bills itself as part emerging markets ETF as well. It’s suitable for investors who can handle the increased volatility of emerging market stocks and who believe in the potential of the fintech industry in developing nations.
The fund is geographically focused on Latin America and Africa, as well as Asia, Eastern Europe and the Middle East. The investment rationale for emerging market fintech is the idea that developing nations will not be slowed by the need to transition from old technologies to new, modern technologies. Consumers and businesses in emerging market nations can, in effect, leapfrog developed countries and adopt innovative fintech solutions from the start of their industrialization.
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7 Best Fintech ETFs to Buy Now originally appeared on usnews.com
Update 06/10/24: This story was previously published at an earlier date and has been updated with new information.
