As trade tensions between the U.S. and China reach a boiling point, stocks are getting pummeled. The S&P 500 had shed as much as 5% from its recent highs.
In times like these, it is not surprising that many investors get defensive and look to reduce their portfolio’s volatility via safer asset classes. It is reasonable and probably advisable that amid international headline risk, investors lean toward safer assets and the related exchange-traded funds (ETFs). However, there is another benefit to market declines, such as the current one, that take place within the confines of a bull market: investors can scoop up some compelling assets at favorable prices.
Those compelling assets that have recently been discounted may include thematic ETFs. Within that space, are some interesting fintech ETFs that offer tactical investors a refreshed, growthier approach to the normally staid financial services sector.
A base definition of fintech is a financial service that is rooted in technology, but the industry is sprawling and encompasses myriad everyday financial functions, including traditional banking and lending, sending and receiving payments, investing and much more.
Here are some of the best fintech ETFs to consider for investors looking to buy on the dip.
Fintech ETFs to Consider: Global X FinTech ETF (FINX)
Expense Ratio: 0.68% per year, or $68 on a $10,000 investment.
The Global X FinTech ETF (NASDAQ:FINX) is one of the entrenched names among fintech ETFs, but owing to the nascent nature of the fintech industry, FINX does not turn three years old until September. Home to about $348 million in assets under management, FINX tracks the Indxx Global FinTech Thematic Index.
FINX member firms hail from industries “like insurance, investing, fundraising, and third-party lending through unique mobile and digital solutions,” according to Global X.
FINX holds 37 stocks and investors should note that only a scant percentage of the fund’s holdings are officially classified as financial services firms. Rather, over 85% of FINX’s holdings are data processing firms and software providers, meaning this fintech ETF is almost a tech fund. This fintech ETF is cap-weighted and its top 10 holdings combine for approximately 60% of its weight.
“While some might argue that in the aggregate smaller companies offer higher growth opportunities than larger companies and therefore warrant more exposure than a market cap weighting scheme offers, we do not always find this to be the case in disruptive industries,” according to Global X research. “Using history as our guide, recent powerful themes have demonstrated that larger companies enjoy enormous benefits due to economies of scale and network effects.”
ETFMG Prime Mobile Payments ETF (IPAY)
Expense Ratio: 0.75%
At nearly four years old, the ETFMG Prime Mobile Payments ETF (NYSEARCA:IPAY) is the oldest of the fintech ETFs available in the U.S. This $475 million fintech ETF tracks the Prime Mobile Payments Index.
As its name implies, IPAY focuses on the mobile payments niche, giving the fund a narrower focus than the aforementioned FINX, but compelling exposure nonetheless. With the emphasis on mobile payments, IPAY’s top 10 holdings are not surprising. The group includes PayPal (NASDAQ:PYPL), Square (NYSE:SQ) and each of the four major U.S. credit card issuers.
IPAY is a play on mobile payments growth and the growth estimates for this market are staggering.
“A study conducted by Allied Research found that the mobile payment market is anticipated to grow at a compound annual growth rate (CAGR) of 33.8% from 2017 to 2023 reaching a market size of $4,574 billion by 2023,” according to IPAY’s issuer.
Amplify CrowdBureau Peer-to-Peer Lending & Crowdfunding ETF (LEND)
Expense Ratio: 0.65%
The Amplify CrowdBureau Peer-to-Peer Lending & Crowdfunding ETF (NYSEARCA:LEND) debuted last week, making it the newest member of the fintech ETF fray. LEND targets the CrowdBureau Peer-to-Peer (P2P) Lending & Equity Crowdfunding Index.
That benchmark “is comprised of companies that 1) operate the platforms that facilitate P2P lending and investment-based crowdfunding, and 2) provide the technology & software that enable the operation of these platforms,” according to Amplify ETFs.
Much like IPAY, LEND is a niche fintech ETF with focus being crowdfunding and peer-to-peer lending. More than the other funds highlighted here, LEND provides exposure to ex-U.S. fintech opportunities by allocating half its weight to emerging markets stocks.
LEND is heavily allocated to just three stocks — LendingTree (NASDAQ:TREE), Qudian (NYSE:QD) and LexinFintech Holdings (NASDAQ:LX). That trio combines for nearly 52% of the new fintech ETF’s weight.
“Crowdfunding is an umbrella term generally referring to the financing method, typically internet-based, by which capital is raised through the solicitation of small individual investments or contributions from a large number of persons, entities or institutions that lend money directly or indirectly to businesses or consumers,” according to Amplify.
Tortoise Digital Payments Infrastructure Fund (TPAY)
Expense Ratio: 0.4%
Having debuted in February, the Tortoise Digital Payments Infrastructure Fund (CBOE:TPAY) is one of the newer fintech ETFs and one of the group’s hidden gems. TPAY tracks the Tortoise Global Digital Payments Infrastructure Index, giving the fund a fairly broad fintech reach.
TPAY’s underlying index is “comprised of companies that are materially engaged in digital payments, including merchant processing and settlement, real time record keeping, settlement networks, and Fintech products/services that facilitate the ease, efficiency, and speed of electronic transactions,” according to Tortoise.
Due in part to a significantly lower fee, TPAY could be a credible alternative to the aforementioned IPAY because, by weight, the overlap between those two fintech ETF is 68%.
ARK Fintech Innovation ETF (ARKF)
Expense Ratio: 0.75%
The ARK Fintech Innovation ETF (NYSEARCA:ARKF) also debuted in February and this actively managed fintech ETF is off to an impressive start, having already accumulated $57 million in assets under management. That is an impressive sum for a thematic ETF that is just 90 days old. ARKF is an actively managed fund. In some cases, that would not be a selling point, but several of ARK’s other actively managed ETFs have stellar track records of soundly beating broader equity benchmarks.
Typically, ARKF will hold between 35 and 55 stocks. On the lower end, that is mostly inline with other fintech ETFs, but on the higher end, ARKF could periodically have a larger roster than rival fintech ETFs. An advantage of ARKF being actively managed is that although its roster is unlikely to significantly exceed 55 stocks, the fund’s fintech reach is broad and includes blockchain, funding platforms, risk transformation and other fintech niches that are not represented in all of the aforementioned funds.
ARKF’s largest holding is Square, but the fund also features Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) among its top 10 holdings. Those companies have significant mobile payments exposure. Apple is even getting into the credit card business, but the fintech footprints of Apple and Amazon are usually ignored by passively managed fintech ETFs.
As of this writing, Todd Shriber did not own any of the aforementioned securities.
