Venture capitalists showered Financial Technology (FinTech) with love in 2021, investing $130 billion into fintech apps, marking a staggering 175% increase from the previous year. Overall interest in “fintech” has also doubled since 2020.
What’s Driving FinTech’s Growth?
The fintech investment trend is being driven by various factors, including the demand for payment alternatives (e.g., buy now, pay later apps like Affirm), convenience for consumers (e.g., opening accounts via neo-banks on mobile phones), secure transactions to protect personal information, and the growing interest in blockchain and cryptocurrency.
What are the top 3 most popular fintech ETFs?
Cathie Wood's ARK Fintech Innovation ETF (ARKF) is currently the most popular fintech ETF in terms of assets under management (AUM), with $840M AUM as of writing. It is an actively managed ETF that seeks long-term growth and primarily invests in companies that offer innovative fintech solutions. The fund's top holdings include Shopify (SHOP), Block (SQ), and Coinbase (COIN). Since its inception in 2019, ARKF has generated a net return of -10%. The management fee for this ETF is 0.75% (average ETF management fee is 0.45%).
The Global X FinTech ETF (FINX) is the oldest fintech ETF with $412M in AUM. In comparison to ARKF, FINX has a lower AUM and a total return of -24% over the same period. Its top holdings include Intuit (INTU), Adyen (ADYEN NA), and PayPal (PYPL). The management fee for this ETF is slightly lower than ARKF at 0.68%.
ETFMG Prime Mobile Payments ETF (IPAY) stands out from the other two primary fintech ETFs by focusing on mobile payments, taking advantage of the trend towards digital payment methods. It holds roughly 50 positions and manages $480M in AUM, with a cost of 0.75% which is identical to ARKF's cost. However, IPAY has a higher return of 2.3%, compared to ARKF's return of -10% since ARKF’s inception in 2019.
Top Fintech ETFs vs Dollar Cost Averaging
Investing in Fintech ETFs is a popular way to gain exposure to the fintech sector, but it's important to understand that when you invest in an ETF, you're buying shares of the ETF, not the individual company stocks it holds. Unlike purchasing individual stocks, the price of an ETF doesn't always reflect the prices of the stocks in its portfolio. The difference between the price of the underlying assets and the price of shares of an ETF is known as “performance drift”. ETFs are traded on stock exchanges like individual stocks, so their prices can be influenced by a variety of factors beyond the value of the underlying stocks.
On the other hand, dollar-cost averaging is a different investment strategy where you invest smaller amounts of money regularly, instead of investing a lump sum all at once. By doing so, you can reduce the impact of market volatility on your investment and start with small amounts as low as $5 per week through Share.
Suppose you had invested $20 weekly in a basket of fintech stocks over the last 5 years; you would have invested $5,220 with a -4.6% return. Conversely, investing a lump sum in FINX would have returned -13.2%, while IPAY would have resulted in a 60% return.
You can utilize a dollar-cost averaging calculator to customize your own ETFs and view historical returns.