Among thematic exchange traded funds, the Global X FinTech ETF (FINX ) is proving to be a star this year with a gain of nearly 38%. Some fundamental factors indicate FINX could still be in the early innings of its ascent.
FINX, which is nearly three years old, tracks the Indxx Global FinTech Thematic Index. The fund “seeks to invest in companies on the leading edge of the emerging financial technology sector, which encompasses a range of innovations helping to transform established industries like insurance, investing, fundraising, and third-party lending through unique mobile and digital solutions,” according to Global X.
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.
“Currently, FinTech represents just 6%, or approximately $675 billion, of the total global estimated annual revenue for the financial services industry,” said Global X in a recent note. “In addition, a recent Global X survey of consumer adoption of disruptive technologies revealed that just 11% of consumers indicated that they use mobile wallets on at least a weekly basis, compared to 84% use of credit cards.”
FINX ETF Fuel
Electronic and mobile payments are expected to be key drivers of fintech growth in the coming years and it appears some market observers are awakening to the potential offered by some FINX holdings. Not surprisingly, millennials are big drivers of thematic adoption, including fintech.
Payments are increasingly going digital with a number of start-ups seeing venture capital seed money to help facilitate online purchases. According to research company Pitchbook, data shows that investors put $18.5 billion into the payment processing sector in 2018–an increase of five times the previous year.
Importantly, FINX is showing it can be a credible alternative to traditional financial services ETFs.
“Since 09/13/2016, the date of inception of Global X FinTech ETF, until 07/08/2019, the Indxx Global Fintech Thematic Index has outperformed the Financial Select Sector Index by 49.59%,” according to Global X. “Also, a zero percent overlap between the two indices and a correlation of 0.572 suggests a weak relationship between the old and new financial firms.”
For more information on thematic ETFs, visit our Thematic Investing Channel.