COIN - Global X FinTech ETF: Can It Rebound?

2023-11-20 15:41:29 ET

Summary

• Global X FinTech ETF is an ETF that tracks the performance of companies in the fintech sector.
• The ETF holds a maximum of 100 fintech companies, including Intuit, Fiserv, Coinbase, Fidelity National Information Services, and Adyen.
• FINX has underperformed compared to other fintech ETFs and the broader technology market, but may still be an interesting opportunity for long-term passive investors.

Overview

The Global X FinTech ETF ( FINX ) is an exchange-traded fund (ETF) that seeks to track the performance of companies involved in the financial technology (fintech) sector. Fintech refers to the use of technology to provide innovative financial services and products. FINX ETF typically includes companies engaged in various aspects of the fintech industry, such as payment processing, peer-to-peer lending, blockchain technology, and other disruptive financial technologies. The specific holdings of the ETF may change over time as it aims to capture the evolving landscape of the fintech sector.

Investing in FINX provides investors with a way to gain exposure to the growth and potential of the fintech industry without having to select individual stocks. Like other ETFs, FINX offers diversification benefits by holding a basket of securities. The ETF has an expense ratio of 0.68%, representing the annual costs when investing in the ETF. FINX is issued by Mirae Asset Global Investments and has assets under management totaling roughly $320 million.

Holdings

FINX strives to include a maximum of 100 FinTech companies in its portfolio, chosen and weighted based on market capitalization. To manage risk and diversify holdings, individual securities are restricted from exceeding a 6% weight, and the total weight of securities with over 5% allocation is limited to 40% of the portfolio. The index undergoes an annual rebalance and reconstitution process.

The largest 5 holdings of the FINX ETF include:

• Intuit Inc. ( INTU ) - Intuit is a financial software company known for products like QuickBooks and TurboTax, providing solutions for personal finance, small business accounting, and tax preparation.

• Fiserv, Inc. (FI) - Fiserv is a global provider of financial services technology, offering solutions in areas such as payment processing, banking, and e-commerce.

• Coinbase Global ( COIN ) - Coinbase is a leading cryptocurrency exchange platform, that facilitates the buying, selling, and storage of various cryptocurrencies.

• Fidelity National Information Services ( FIS ) - FIS is a multinational financial services technology company, offering a range of solutions for banking, payments, and wealth management.

• Adyen N.V. ( ADYEY ) - Adyen is a Dutch payment company that provides a seamless and modern payment platform for businesses, enabling transactions across various channels and geographies.

Other notable companies include PayPal Holdings ( PYPL ), a global online payment platform for electronic transactions, and Square ( SQ ), a fintech company offering mobile payments and business solutions. The ETF currently holds shares of 61 companies, predominantly from the U.S. with a total weight of almost 80%. Other countries include Australia (4.88%), the Netherlands (3.44%), and the United Kingdom at 3.13%.

Performance

Due to the notable weakness in performance from large fintech holdings such as PayPal and Adyen, which make up a large part of FINX, the ETF underperformed the broader technology market. Here, the Nasdaq Index ( QQQ ) returned 36%, compared to FINX, which returned just 5%. ARK's well-known Fintech ETF ( ARKF ) outperformed the QQQ with a 40% year-over-year return.

This is mainly because ARKF's largest holdings include Coinbase and Shopify ( SHOP ), which surged over the past year as a result of strong earnings . ARKF shares some holdings such as Intuit, yet includes many other holdings which aren't purely fintech based such as UiPath ( PATH ), Twilio ( TWLO ), and DraftKings ( DKNG ). As most software stocks generally had a decent year, it is unsurprising that ARKF outperformed FINX. The ETF has a similar expense ratio to FINX at 0.75% annually.

Nevertheless, FINX outperformed ETFs such as the Financial Select Sector SPDR Fund ( XLF ), which focuses on large banks, including Bank of America ( BAC ), Wells Fargo ( WFC ) and Goldman Sachs ( GS ). Its largest holding is Berkshire Hathway ( BRK.B ), accounting for 13% of the total assets. As large banks took a hit in 2023 as a result of high bond yields and trouble in some regional banks, the ETF underperformed the broader market. However, the ETF has a much lower expense ratio, at just 0.10% annually. It also offers a higher distribution yield (dividend) at 2% annually, compared FINX, which pays just 0.26%.

Takeaways

FINX is currently down approximately 60% from its 2021 all-time highs and has yet to rebound, in contrast to the Nasdaq Index. This lack of recovery is partially attributed to its unfavorable market-cap-based rotation strategy. Despite holding some stocks that I personally find appealing like PayPal, the ETF comes with a relatively high expense ratio, and some of its holdings, including the largest position Intuit, are not particularly cheap, trading at 34 times forward earnings.

Going forward, the ETF's performance is closely tied to the developments of the fintech industry. While the sector as a whole is expected to grow quickly over the next decade, growth, changes in regulations, technological disruptions, or shifts in consumer behavior within this sector can affect the fund's holdings. In case of economic weakness, slower growth for the included companies could lead to lower valuations. Nevertheless, for long-term passive investors seeking broad exposure to the fintech market, FINX may present an interesting opportunity.

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