Among disruptive growth investment themes, fintech is one of the most dominant forces. Advisors and asset allocators looking to craft allocations around that concept can use the KBW Nasdaq Financial Technology Index (KFTX) as a gauge.
Fintech firms are companies that are powered by innovations, working to disintermediate or bypass the current financial markets and challenge traditional institutions by offering new solutions that are better, cheaper, faster, and more novel and secure.
Stocks in this category, including Square and PayPal, have a myriad of tailwinds. Square and PayPal are currently threatening major credit card networks. That threat is emerging more rapidly than many industry observers expected.
“Fintech is a relatively new industry designation garnering increasing investor attention. Fintech is not consistently defined, and the term is used to describe many different types of companies classified in various industries. KFTX leverages KBW’s financial services expertise and Nasdaq’s long history of creating innovative, market-leading, transparent indexes to provide investors with the most precise index representation of fintech available in the market,” according to KBW Research.
KFTX: Fantastic Fintech Benchmark
KFTX is a timely index consideration due in large part to the coronavirus pandemic.
“The pandemic is likely to result in a permanent shift toward digital forms of banking, payments, insurance and asset and wealth management,” notes KBW. “It has also led to a big reduction in future earnings power for rate-sensitive businesses. Some fintech incumbents have already announced cost-cutting plans, but both shareholders and supervisors are encouraging institutions to go further to improve profitability. For the winners, this likely means adopting new technology (either developing in-house or utilizing third parties) to overhaul high infrastructure costs. For the losers, it means surrendering business to new entrants that can offer superior customer service at a lower cost.”
Even before the coronavirus pandemic, which is sparking increased use of cashless/contactless payments, many customers were reducing visits to bank branches.
“Once consumers have grown accustomed to using primarily digital payments, many will not revert to traditional means,” according to UBS.
“New fintech players are building momentum and gaining share. Some are now seen as vendors to incumbents, helping to reduce costs and improve processes for those that embrace change. Others represent direct competition,” concludes KBW.
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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.