The Global X FinTech ETF (NasdaqGM: FINX) is up nearly 34% year-to-date and is trouncing traditional financial services exchange traded funds in the process.
FINX, which is nearly three years old, tracks the Indxx Global FinTech Thematic Index. The fund “seeks to invest in companies on the leading edge of the emerging financial technology sector, which encompasses 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.
One issue faced by investors considering thematic ETFs, such as FINX, is what are the current levels of adoption of the underlying theme. Data suggest that while scores of other themes are potentially compelling over the long-term, penetration rates among consumers are currently low. That is not the case with the fintech.
“Cash isn’t king, credit cards are, with 84% usage on a weekly basis,” said Global X in a recent note. “Comparatively, only 11% of consumers use mobile wallets on a weekly basis, and just 6% use peer to peer payments at the same frequency, demonstrating low penetration of the latest FinTech payment options.”
A Fantastic Fintech Idea
Fintech allows financial firms to leverage cutting edge technology to reduce costs, improve decision making and risk controls, remove middlemen and enhance customer experiences. A thematic approach includes investments that stand to benefit from structural change driven by demographic and technological changes.
Electronic and mobile payments are expected to be key drivers of fintech growth in the coming years and it appears some market observers are awakening to the potential offered by some FINX holdings. Not surprisingly, millennials are big drivers of thematic adoption, including fintech.
“Much has been made about the different spending patterns of the Millennial generation versus older cohorts, particularly their affinity for technology,” according to Global X. “These unique preferences are apparent in our survey, as Millennials frequently indicated higher adoption, greater interest, and more comfort in new technologies than the next largest population group in the US, the Baby Boomers.”
For more information on thematic ETFs, visit our Thematic Investing Channel.