If you’re looking to invest in FinTech, buy the Global X FinTech ETF (NASDAQ:FINX). Let me explain.
The majority of Wall Street implements a bottom-up approach to investing, which means they identify stock ideas based on fundamentals and disregard sectors and trends. This works at times, but it could also fool you into believing a utility stock is a good investment even though the sector has been underperforming this year.
The other side of the coin is top-down investing, also referred to as macro-to-macro investing. This is the strategy I implement because it puts more of the odds in our favor. A top-down approach allows us to focus on the trends and sectors first. We can stop there, or we can dig deeper to uncover the strongest stocks within the theme.
The Benefits of an ETF
At first glance, you may think that doing the extra research will allow you to uncover better investment ideas. Oftentimes it does, but sometimes stopping at the sector level is just as rewarding.
The financial technology, or FinTech, sector has been performing very well recently, currently up 20% so far this year. The group as a whole is fairly narrow, but several of the subsectors within it have huge upside potential.
This is where ETFs come into play. These investment vehicles allow investors to gain access to various niche subsectors with the purchase of a single asset. They also greatly help reduce company-specific risk.
The Global X FinTech ETF
The ETF I like in this space is Global X FinTech ETF. This basket of stocks hit a new all-time high this week, and in the last year alone it is up a whopping 42%.
FINX provides exposure to FinTech’s global leaders with a diversified approach, and one of the things I like most about it is that it holds several foreign stocks that the average investor would typically have difficulty buying. In fact, two of its top three holdings are in large German companies that do trade as ADRs (American depository receipts) in the United States but have very little volume.
Because of the ETF’s huge rally over the last year — and in the last month especially — FINX is due for a natural and healthy pullback at some point in the next few weeks. But any near-term weakness should be viewed as a buying opportunity.
The future of the financial sector is in the early stages of a major transformation, and I suspect the stocks that make up FINX will be some of the biggest winners.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.