The Coronavirus pandemic is having profound effects on how consumers dine, shop, and conduct basic financial transactions and that’s to the benefit of fintech purveyors, including many of the companies residing in the ARK Fintech Innovation ETF (ARKF).
Fintech allows financial firms to leverage cutting edge technology to reduce costs, improve decision making and risk controls, remove middlemen, and enhance customer experiences. A thematic approach includes investments that stand to benefit from structural change driven by demographic and technological changes.
More analysts are warming to ARKF components Square (NYSE: SQ) and PayPal (NASDAQ: PYPL), two names that combine for about 16% of the fund’s roster.
“The company reported record growth in March and April when lockdown orders began in many parts of the country, and (Piper Sandler analyst Christopher) Donat says the strength continued through May and June as parts of the economy reopened,” reports Teresa Rivas for Barron’s. “Moreover, he argues that the faster account growth that PayPal is seeing could ultimately add 10% or more to the company’s earnings per share.”
ARKF member firms are companies that are powered by innovations and are working to disintermediate or bypass the current financial markets and challenge traditional institutions by offering new solutions that are better, cheaper, faster, and more novel and secure.
“We would encourage investors to build or add to positions in PayPal, especially in any future pandemic-related market pullbacks,” said Donat. “We expect PayPal to be one of the better revenue growth stories in the payments sector in coming quarters.”
The analyst is also bullish on high-flying Square, which accounts for more than 12% of ARKF’s roster.
Square is “one of the best growth stories in the payments space, as demonstrated by annual gross profit growth that has exceeded 40% for the past five years,” according to the analyst.
Fintech is fertile territory for disruption because many traditional banks were asleep at the wheel when it comes to developing the products and services offered by ARKF holdings and those old school institutions are playing catch-up while ARKF holdings set the pace. Some of these companies are poised to become bigger parts of familiar benchmarks in the coming years, but ARKF is levered to that growth today.