Stocks are being punished amid the coronavirus outbreak, a scenario that is hurting growth equities to a large extent, but when virus headwinds abate investors should remember some of the ETFs that led the previous march higher, including the ARK Fintech Innovation ETF (NYSEARCA: ARKF).
ARKF invests in equity securities of companies that ARK believes are shifting financial services and economic transactions to technology infrastructure platforms, ultimately revolutionizing financial services by creating simplicity and accessibility while driving down costs.
One reason to consider ARKF is its 11.31% weight to Square (NYSE: SQ), one of the leading fintech names. ARKF’s weight to that stocks is one of the largest among all ETFs.
Broadly speaking, Square is viewed as the leader of in mobile point-of-sale (POS) gadgets and gear and an increasingly formidable competitor in POS for land-based businesses,” reports InvestorPlace. “Those remain brand recognition and revenue drivers as well as possible catalysts for margin expansion, but as investors that actively follow SQ stock know, there are more chapters in this book.”
ARKF: Fintech Excellence
One of the most compelling attributes of ARKF is that the fund casts a wide net across the fintech ecosystem, a theme embodied by Square, which has catalysts such as Cash App.
The payment processing space is seeing a growing number of big bets placed by venture capitalists, which could give financial technology ETFs a boost. It’s a $1.9 trillion industry that the largest tech firms are trying to tap into
“On a standalone basis, both POS and Cash App are compelling, but if Square can effectively realize synergies between the two offerings, that could prove significant for investors,” according to InvestorPlace.
If ARK’s team sees opportunities in those names or areas of the fintech market, it can exploit those odds more effectively than index-based rivals because ARKF isn’t constrained by a benchmark.
Payments are increasingly going digital with a number of start-ups seeing venture capital seed money to help facilitate online purchases. According to the 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.
As for ARKF’s largest holding Square, the outlook remains upbeat despite the pressure on the name over the past week.
“With the coronavirus issue lingering, Square could be affected over the near-term simply because some investors don’t want to embrace the risk profile of growth stocks,” according to InvestorPlace.
“That could spell a buying opportunity because Square depends on the U.S. for the bulk of its revenue and has compelling products and services that aren’t fully baked into the stock price.
For more on disruptive technologies, visit our Disruptive Technology Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.