The fintech space looked promising heading into 2021, but despite its recent descent, it presents investors with an opportune buy-the-dip play.
Digital payments were a hot commodity during the height of the pandemic in 2020, but a risk-on sentiment gaining steam in 2021 may have changed that tune. Investors were expecting that contact-less payments would drive the prices of fintech stocks higher, and they did, but maybe to frothy valuations.
As such, the sector has faltered in recent months, as evidenced by the BlueStar Fintech Index. The index has fallen 17% within the last few months.
Market leaders like PayPal and Square have seen their stocks plummet as of late, but it could present an opportunity for bargain hunting. The introduction of the Omicron variant, in particular, could cause investors to once again give these fintech stocks a closer look.
“With speculative froth replaced by reduced expectations that border on despondency in the cases of PYPL and [Lightspeed Commerce Inc.], in particular, we believe it’s worth revisiting the product-market fits that enabled these companies to emerge as market favorites in the first place,” said BTIG analyst Mark Palmer.
A Fintech ETF Worth Considering
Instead of eyeing individual stocks, investors can get broad-based fintech exposure using the Global X FinTech ETF (FINX). FINX seeks to provide investment results that correspond to the Indxx Global Fintech Thematic Index.
The index is designed to provide exposure to exchange-listed companies in developed markets that provide financial technology products and services, including companies involved in mobile payments, peer-to-peer (P2P) and marketplace lending, financial analytics software, and alternative currencies, as defined by the index provider. The fund gives investors exposure to:
- High growth potential: In 2020, the number of active online banking users was approaching 1.9 billion worldwide. Forecasts suggest that this number could reach 2.5 billion by 2024, highlighting the vast reach in just one segment of this theme.
- Global tailwinds: Fintech is a global theme, poised to benefit as expanding broadband and mobile internet penetration coincide with a rising middle class in developing markets, historically under-served by traditional financial services.
- Changing consumer preferences: While fintech companies have historically catered to the digital preferences of younger consumers, they are increasingly competing on cost and convenience across a range of more established industries like lending and insurance.
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