Banking & Finance

Cathie Wood's Fintech ETF Has Profitable Past and a Bright Future

The COVID-19 pandemic sped up a transition in global payment types. With stay-home restrictions and general caution on the part of consumers, point-of-sale (POS) cash transactions fell by 32% globally in 2020 to just over 20% of all global POS sales. Much of that share was taken by digital (or mobile) wallets.

According to a new report from FIS Worldpay, a division of Fidelity National Information Services (FIS), mobile wallet payments rose by nearly 20% last year and represented more than 25% of global POS transactions last year. Mobile wallet payments also exceeded global POS payments by credit card (22.4% globally) and debit cards (22.3%).

By 2024, FIS Worldpay forecasts mobile wallet POS payments will rise to more than a third of all such payments, while credit card payments will rise to 22.8% and debit card payments will rise to 22.4%. Cash payments will continue falling, reaching 12.7% in 2024.

What are the top investments in mobile wallets? Before teasing out more from the FIS Wordplay study, here’s our quick look at four exchange-traded funds (ETFs) that focus on the financial services or financial technology (fintech) sectors.

Ark Invest’s Fintech Innovation ETF (NYSEARCA: ARKF) had nearly $2 billion in assets under management at the end of December and had more than doubled its net asset value over the course of 2020. Since its inception in February 2019, the fund has returned 62.2%. As of last Friday, net assets in the fund totaled $2.72 billion. Square accounts for 9.71% of its holdings, and PayPal accounts for 5.45% of the fund’s investments. Other fintech firms among its top 10 holdings are Zillow, Pinterest, Shopify and Sea.

The fund’s top holding is Square, whose digital payment and stock trading Cash App, has contributed to sending the company’s shares up more than 200% over the past 12 months. The ETF’s second-largest holding is PayPal, the payments processor and owner of the Venmo mobile wallet, which has added about 145% over the past 12 months.

The Global X FinTech Thematic ETF (NYSEARCA: FINX) had about $1.26 billion in assets under management as of last Friday. The fund was created in September 2016 and shares have appreciated by around 54% over the past 12 months. The fund’s top holding is Square, and its fifth-largest holding is PayPal, with asset percentages of 8.21% and 5.62%, respectively. Australia-based Afterpay and Netherlands-based payment software provider Ayden are the second- and third-largest holdings in the fund, with investments totaling 7.41% and 6.16% of assets, respectively.

The third financial services ETF we looked at is the iShares U.S. Financial Services ETF (NYSEARCA: IYG). The fund’s top holding is megabank JPMorgan Chase (12.54% of assets), with credit card issuers Visa and Mastercard as the second- and third-largest (89.97% and 8.49%, respectively). Of the top eight holdings, six are the country’s largest banks.

The fund has $1.35 billion in assets under management, and ETF shares have appreciated by about 21% over the past 12 months, less than half as much as shares in Global X FinTech Thematic and about 90% below the growth in the Ark Invest ETF.

The last of the financial services ETFs we looked at was the Financial Select Sector SPDR Fund (NYSEARCA: XLF). With some $34.5 billion in assets under management, this ETF is by far the largest and oldest (inception date of December 1998). The top holding is Warren Buffett’s Berkshire Hathaway (12.87% of assets), and the next six largest holdings are all the biggest U.S. banks.