Financial technology is changing.
The growth of mobile payments and e-commerce forms only part of the development of financial technology, or fintech, and its impact on the global banking system. From cryptocurrencies to risk-management artificial intelligence to crowdfunding, things are changing for finance in the 21st century. If you’re looking to invest in these trends, picking individual stocks can require a lot of research — and in many cases, a lot of risk. Another option: exchange-traded funds, or ETFs, that offer an easy and diversified way to invest in the fintech revolution. Here are seven fintech ETFs to consider.
Global X FinTech ETF (ticker: FINX)
This Global X fintech ETF is one of the oldest and most established on the list. Market participants interested in accessing an investment with potential for high growth, featuring innovative technologies that are transforming financial services, should look into FINX. With more than $1.3 billion in assets and more than five years on public markets, FINX is a legitimate ETF with clear interest behind it. The fund holds more than 50 of the world’s top fintech names. The tactics of this fund involve putting money behind companies “on the leading edge of the emerging financial technology sector,” according to Global X’s fund summary. That means the ETF’s top holding is Adyen, a Dutch global single-payments platform that enables businesses to accept online payments on any device. PayPal Holdings Inc. (PYPL), Coinbase Global Inc. (COIN) and Afterpay Ltd. are included in the fund’s top 10 holdings. They are all companies that represent major themes in fintech, including mobile payments, peer-to-peer and marketplace lending, and blockchain.
Ark Fintech Innovation ETF (ARKF)
The Ark family of ETFs gives investors unique offerings focused on disruptive areas of technology and growth, from biotech stocks to self-driving vehicles. ARKF is the fintech offering, launched in early 2019 and offering exposure to firms in mobile payments as well as digital wallets and blockchain technology. ARKF provides exposure to a diversified fund that holds risky, yet cutting-edge companies across different markets. This Ark fund is an actively managed fund with an expense ratio of 0.75% and net assets worth $4 billion. The fund holds more than 40 fintech companies, both foreign and domestic, that provide products or services that may change the financial technology landscape, providing the opportunity for high-capital growth potential. Its No. 1 position is payments fintech Square Inc. (SQ), and the fund holds a smattering of digital retail plays, including Canadian e-commerce giant Shopify Inc. (SHOP).
ETFMG Prime Mobile Payments ETF (IPAY)
Mobile payments are a big part of the potential many see in fintech. Just as the digital age has allowed investors to easily access information on the go, smartphones also allow them to transact anywhere on the planet. Those transactions can take place without cash, and some can have greater security than a physical credit card. The ETFMG Prime Mobile Payments ETF seeks to match the performance of the Prime Mobile Payments Index, a benchmark for the mobile and electronic payment industry. IPAY is a pure play on this corner of fintech, featuring PayPal and Square along with big dogs such as Visa Inc. (V) and smaller players such as PaySign Inc. (PAYS). The fund is one of the first ETFs to target the mobile payments industry. It has more than $1.2 billion in assets under management, making it one of the larger dedicated fintech funds.
Ecofin Digital Payments Infrastructure Fund (TPAY)
A smaller and more recent entrant with $14 million in total net assets, TPAY is also a twist on digital payments — but one that focuses on the infrastructure required for 21st-century transactions rather than trying to pick stocks that process the most in volume. More than 50% of TPAY’s revenue comes from electronic transaction processing. Consider one of the fund’s top holdings, Fiserv Inc. (FISV), which offers risk management, compliance and technology services to banks. Or look to another holding, DocuSign Inc. (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 — not consumers — and add an interesting twist to the digital payments trend. A defining characteristic of Ecofin is that it focuses on sustainable investments by bringing together ecology and finance with the aim to bring about a positive impact on society.
Industrial Select Sector SPDR ETF (XLI)
XLI seeks to match the performance and composition of its benchmark, the Industrial Select Sector Index, one of the major economic segments of the S&P 500. As fintech developments such as blockchain and artificial intelligence play a larger role in the industrial sector, those companies will grow more efficient by streamlining operations, increasing productivity, honing supply-chain management and making other improvements. So this fund is a way to bet on the efficiency effects that fintech can bring to other industries. XLI has performed in line with its benchmark since inception in 1998 and has a year-to-date return of about 17% in 2021. Some of its holdings include top industry names such as Honeywell International Inc. (HON), Raytheon Technologies Corp. (RTX), Boeing Co. (BA) and Caterpillar Inc. (CAT).
Vanguard Growth ETF (VUG)
Investors looking to access high-growth names but at a low cost can turn to VUG. Many of the companies in this fund are transforming their industries using fintech innovations, so it is another way to bet on the ripple effect of fintech. This growth ETF also has the lowest expense ratio on the list, at 0.04%. The fund is suitable for a long-term investor taking a passive investment approach since it includes some of the largest growth names in its portfolio. It also provides a degree of diversification since the fund only dedicates 48% to technology, with the other half allocated to a variety of equity market sectors. Some of the fund’s top holdings include Apple Inc. (AAPL), Amazon.com Inc. (AMZN), Facebook Inc. (FB), Tesla Inc. (TSLA) and Nvidia Corp. (NVDA), among many other Big Tech names.
iShares U.S. Financial Services ETF (IYG)
This fund appeals to investors who want exposure to the financial services sector. With an expense ratio of 0.42%, IYG incorporates huge fintech incubators within some of the biggest financial firms, including Goldman Sachs Group Inc. (GS) and financial services companies such as American Express Co. (AXP). IYG offers an easy way to invest in the internal efforts at these big players. Not only are these efforts well-funded, but they also can easily be supplemented by big-ticket acquisitions that strengthen the dominance of these leading financial players.
Fintech ETFs to buy now:
— Global X FinTech ETF (FINX)
— Ark Fintech Innovation ETF (ARKF)
— ETFMG Prime Mobile Payments ETF (IPAY)
— Ecofin Digital Payments Infrastructure Fund (TPAY)
— Industrial Select Sector SPDR Fund (XLI)
— Vanguard Growth ETF (VUG)
— iShares U.S. Financial Services ETF (IYG)
