Source has launched the first European-listed exchange traded fund (ETF) tracking the fintech companies.
Source KBW NASDAQ Fintech UCITS ETF (FTEK) tracks an equal-weighted index of US fintech companies which "leverage technology to deliver financial products and services". The index is selected by a five-person committee and is made up of a concentrated basket of just 50 companies. These include financial stalwarts such as Visa (US:V) and American Express (US:AXP), stock exchange Nasdaq (US:NDAQ), peer-to-peer lender LendingClub (US:LC) and payment systems provider Square (US:SQ).
However, the various different types of companies included in the index the ETF tracks highlight the issue with an investment theme such as fintech, which arguably is more of a buzzword than a homogenous industry sector. Index provider KBW acknowledges that fintech is "not consistently defined".
Alan Miller, founder and chief investment officer of wealth manager SCM Direct, adds: "I would not call some of the holdings (the new ETF tracks) groundbreaking disruptive fintech companies but simply companies supplying services to financial companies. Green Dot Corporation (US:GDOT) is a credit card issuer, SS&C Technologies (US:SSNC) provides financial software & services, and ACI Worldwide (US:ACIW) is an electronic payments company."
And Ben Seager-Scott, director of investment strategy and research at Tilney Group, says: "The problem with most thematic investing is it can be heavy on narrative but lighter on fundamentals. Fintech is a nascent industry, so while there is a lot of excitement, the stocks can be hard to accurately value."
KBW says that back-tested data finds that KBW NASDAQ Fintech index has markedly outperformed the S&P 1500 Financials index over the past 10 years. But Oliver Smith, portfolio manager at IG, argues: "I suspect the outperformance relies more on price-earnings multiple expansion than earnings growth - tech has performed very well in recent years - so I would approach this ETF with greater than usual caution."
Source KBW NASDAQ Fintech UCITS ETF is also a synthetic ETF so it doesn't buy the shares in KBW NASDAQ Fintech index. Instead it holds a basket of stocks that include German pharma giant Bayer AG (Ger:BAYX.N) and Swedish homeware company Electrolux (ELUX B: STO), and pays a counterparty the return of those stocks in exchange for the return of KBW NASDAQ Fintech index. This means investors in the ETF will pay swap fees of 0.1 per cent as well as a management fee of 0.49 per cent.
