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Why This Fintech ETF Remains Fabulous

Thematic exchange-traded funds are all the rage this year as investors pile into funds focusing on everything from fintech to sports betting to video games and much, much more.

· 11/16/2020 08:30

Thematic exchange-traded funds are all the rage this year as investors pile into funds focusing on everything from fintech to sports betting to video games and much, much more.

Such ETFs hauled in $2.5 billion already this month, putting the group on pace for $20 billion in 2020 year-to-date inflows, according to Bloomberg. The phenomenon is largely attributed to retail investors and the Robinhood crowd, but $20 billion is a big number to pin on smaller number investors.

Even if that's all retail money (it's not), that figure implies professional investors are really missing out when it comes to fintech ETFs. Consider the case of the Global X FinTech ETF (NASDAQ:FINX), which is higher by 33.06% year-to-date, beating the S&P 500 by a margin of almost 3-to-1.

Why It's Important: Home to nearly $792 million in assets under management, FINX is more than 4 years old, making it seasoned among thematic funds and ancient by the standards of fintech ETFs.

FINX tracks the Indxx Global FinTech Thematic Index and holds 33 stocks, a stable that focuses on companies “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.

Investor enthusiasm for FINX is palpable. Month-to-date, the fintech ETF is on the receiving end of $6.11 million of inflows. Year-to-date, the number is nearly $156 million, representing a hefty percentage of the fund's total assets under management.

What's Next: PayPal (NASDAQ:PYPL) and Square (NYSE:SQ), two of the most recognizable large-cap fintechs, are driving the group, providing a tailwind for FINX because the ETF allocates almost 14% to that duo. The exposure of those companies to the booming cryptocurrency market is another catalyst for FINX.

“PayPal, a pioneer in the digital payments industry, now offers users the ability to transact with Bitcoin and other cryptocurrencies,” according to Global X research. “The platform’s expanded cryptocurrency functionality also allows users to buy, hold, and sell Bitcoin, Bitcoin Cash, Ethereum, and Litecoin.”

For companies like PayPal, there are tangible benefits to adding crypto services and rival Square proves as much.

“Square and Robinhood are two examples of companies that increased revenue after implementing cryptocurrency services. Square reported that revenue from Bitcoin reached $875 million in Q2 2020, a 600% year-over-year increase,” according to Global X.

Disclosure: The author owns shares of Square.