Financial technology (fintech) stocks were some of the hottest on Wall Street during the pandemic. Research by SVB Financial Group highlights that five of the ten most prominent venture capital-backed technology debuts on Wall Street in 2021 were fintech names.
Most notable pandemic-era listings include Affirm (NASDAQ:AFRM), Coinbase Global (NASDAQ:COIN), Marqeta (NASDAQ:MQ), Robinhood Markets (NASDAQ:HOOD), SoFi Technologies (NASDAQ:SOFI), and Toast (NYSE:TOST), among others.
Meanwhile, global fintech firms raised a record funding of $131.5 billion, or around 20% of all capital invested in 2021 and recent research suggests the global fintech market could be worth more than $320 billion by 2026. Such growth would imply a compound annual growth rate (CAGR) of well over 23% between 2021 and 2026.
However, following record-high share prices, especially in the early part of 2021, many high-growth fintech companies have come under pressure. Investors have notably turned skeptical on lofty valuations due to rising inflation and uncertainties regarding the next move by the Federal Reserve.
Today’s article introduces two exchange-traded funds (ETFs) that focus on the industry. They could appeal to readers who believe fintech shares could see higher prices in the rest of the year.
1. Global X FinTech ETF
- Current Price: $34.62
- 52-Week Range: $30.57 - $53.07
- Dividend Yield: 6.55%
- Expense Ratio: 0.68% per year
Our first fund, the Global X FinTech ETF (NASDAQ:FINX) provides exposure to global fintech companies. They include names in mobile payments, marketplace lending, cryptocurrencies, financial software, crowdfunding, and robo-advisor services. The fund was first launched in September 2016.
FINX, which tracks the Indxx Global FinTech Thematic Index, currently has 66 stocks. The top ten holdings account for over half of net assets of $874.8 million.
Information technology shares have the highest slice with 77.7%. Next are financials (14%), industrials (4.7%), communication services (2.5%), and health care (1.2%).
Almost 70% of the stocks in the fund’s portfolio come from the US. Then come businesses from the Netherlands (6.2%), New Zealand (3.1%), China (3%), and Switzerland (2.7%), among others.
Financial software group Intuit (NASDAQ:INTU) tops the portfolio with an 8.31% share. Payments heavyweight Fiserv (NASDAQ:FISV), Netherlands-based mobile payments group Adyen (OTC:ADYEY); payment processor Fidelity National Information Services (NYSE:FIS), and SS&C Technologies Holdings (NASDAQ:SSNC), which offer financial software products and services, are among the leading stocks on the roster.
In 2022, FINX declined 13.9% and hit a 52-week low on Jan. 28. Trailing price-to-earnings (P/E) and price-to-book (P/B) ratios stand at 22.73x and 3.28x. As a result of the recent pullback, many stocks in the fund trade at lower valuations compared to 2021. Potential investors could consider investing in FINX at current levels.
2. Defiance Digital Revolution ETF
- Current price: $16.06
- 52-week range: $12.13 - $24.44
- Expense ratio: 0.65% per year
Our next fund takes us to the emerging non-fungible tokens (NFTs) market, which hit $25 billion last year. The Defiance Digital Revolution ETF (NYSE:NFTZ) is regarded as the first fund to focus on NFTs. It also gives access to blockchain technologies and cryptocurrencies.
NFTZ, which currently holds 34 companies, tracks the BITA NFT and Blockchain Select Index. It started trading in December 2021, and net assets stand at $11.4 million. In other words, it is a new and small fund.
In terms of sectoral exposure, crypto mining (32%), crypto asset management & trading (23%), and NFTs (22%) led the names on the roster as of Dec. 31, 2021.
The top ten firms comprise close to 45% of the fund’s portfolio. Top holdings include the Japanese financial services company SBI Holdings (T:8473), Bitcoin mining firm Iris Energy (NASDAQ:IREN), eBay (NASDAQ:EBAY), digital asset exchange Coinbase Global (NASDAQ:COIN), and Canada-based Hut 8 Mining Corp (NASDAQ:HUT).
The geographic breakdown is heavily weighted toward the US with 60.7%. Next come Canada (24%), Germany (4.9%), Japan (4.8%), and the UK (3.7%).
So far this year, the fund is down close to 13.5% and hit a record low of $12.13 on Jan. 24. Interested readers should note that thematic investing can be risky, especially in the short term. Therefore, they might want to do further due diligence on NFTZ before hitting the buy button.