The rise of financial technology has been a positive trend this year. Here are four fintech ETFs to profit from it.
In 2020, one clear emerging power trend is financial technology (fintech). Driving this evolution of traditional financial services are companies and countries leveraging technology platforms to adapt to evolving consumer expectations regarding choice, costs, convenience and security.
Many young people in the world today have never stepped foot inside a bank and may never do so. Thanks to the ubiquity of smartphones, the internet and fintech, these people have a whole new set of options for how to manage their finances and grow their portfolios.
Here are three emerging trends that are fueling the rise of fintech. After that, I’ll get to a few fintech ETF ideas to help profit from this fast-growing industry.
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1. Digital Transformation
Physical financial infrastructure requires significant investment in people, buildings, aging technology systems and even older paper-based processes. This dated foundation places incumbents at a disadvantage in terms of both cost structure and user convenience. In contrast, new companies have the advantage of a clean slate and can begin with a state-of-the-art technology platform from the get-go. This dynamic is playing out in virtually every arena of financial services, including banking, real estate, insurance, payments, and wealth management.
2. Artificial Intelligence (AI)
Artificial intelligence is simply the ability of machines to think like an intelligent human but perhaps 1,000 times faster and at a higher level. The ability to gain actionable insights from data using that AI is driving the fintech and creating a frictionless and personalized consumer experiences that are predictive, personal and efficient.
You might think of blockchain as a secure, flexible ledger in the cloud, which offers tamper-proof, transparent tracking of transactions. This allows any process to be streamlined and settlement times can be greatly shortened. Not only does this greatly reduce costs for financial services firms, but it also saves capital, which is increasingly important given the decline in fees and returns, plus the increase in regulatory costs.
With all this in mind, here are four exchange-traded funds (ETFs) to capture these high-growth fintech trends.
4 Fintech ETFs to Consider
Fintech ETF #1: Global X FinTech ETF (FINX)
This Global X fintech ETF is the oldest and most established on the list with more than $400 million in assets and more than three years of track record on public markets. The tactics of this fund involve putting money behind companies “helping to transform established industries like insurance, investing, fundraising, and third-party lending,” according to Global X.
Fintech ETF #2: ARK Fintech Innovation ETF (ARKF)
The ARK family of ETFs may not be as well known as some of the others in the market, but these unique offerings are focused on disruptive areas of technology and growth, from biotech stocks to self-driving vehicles. ARK is the fintech offering, launched in early 2019 and offering exposure to firms in mobile payments as well as digital wallets and blockchain technology. This includes Square (SQ) as well as a smattering of digital retail plays, including South American e-commerce giant MercadoLibre (MELI).
Fintech ETF #3: Tortoise Digital Payments Infrastructure Fund (TPAY)
A smaller and more recent entrant, Tortoise is also a twist on digital payments but one that focuses on the infrastructure required for 21st-century transactions. This ETF’s top holding is Fiserv (FISV), which offers risk management and compliance services as well as technology services to banks. Another holding is DocuSign (DOCU), which provides security and verification services. Rather than build up an installed user base with a payment app or demand billions in linked accounts, these companies count the banks themselves as clients.
Fintech ETF #4: Innovation Shares NextGen Protocol ETF (KOIN)
If the name of this fund has you wondering what it has to do with fintech, the ticker offers a clue. This fund focuses on blockchain technology that powers crypto currencies including bitcoin, ether and others. Though crypto currencies can be volatile, the technology behind them has captured the imagination of many investors. Blockchain is a way to track and digitize assets of any form in a secure and decentralized way.
The largest of NextGen’s holdings are tangential plays like chipmaker Nvidia (NVDA). NextGen is in position to give investors an easy way to play the growth in crypto currencies – without the volatility of owning actual bitcoin.
One smart strategy is to combine an ETF with a specific stock pick. Try my Cabot Global Stocks Explorer advisory today and learn what fintech stock I’m currently recommending.
*This post has been updated from an original version.