By Jeff Schlegel/FA-mag.com
“Fintech” has gone from buzzword to bona fide business tool, and investors looking for a piece of the action in a packaged product now have two exchange-traded funds to choose from with Monday’s launch of the ARK Fintech Innovation ETF (ARKF).
The seventh product from ARK Investment Management LLC follows the New York City-based ETF sponsor’s template of creating funds focused on disruptive innovation. Fintech, short for financial technology, is a broad concept with many players focused on using new technologies designed to deliver financial services more quickly, efficiently and cheaply vis-à-vis the traditional financial services infrastructure. Fintech runs the gamut from mobile banking and digital currencies to crowdfunding and alternative lending platforms.
The actively managed ARKF fund will invest in companies around the globe and across market capitalizations that get a “significant” amount of revenue from the fintech theme or have stated that their primary business pertains to fintech-related products and services.
As described by ARK, the fintech elements within its new ETF comprise transaction innovations, “frictionless” funding platforms, blockchain technology, customer facing platforms, risk transformation and new intermediaries.
As of Monday, the fund’s top holdings were Square Inc. (8.1 percent), Tencent Holdings (6 percent), LendingTree Inc. (5.9 percent), Apple Inc. (4.7 percent) and Amazon.com (4.5 percent).
Like all of ARK’s five actively managed ETFs, the ARKF fund’s expense ratio is 0.75 percent. (Its two index-based funds come with cheaper price points.)
Active Vs. Passive
ARKF’s active approach offers investors a contrast to the Global X FinTech ETF, an index-based product trading under the intriguing ticker symbol FINX. The Global X fund debuted in September 2016 and has garnered roughly $285 million in assets under management.
This global fund, which charges an expense ratio of 0.68 percent, is dominated by the U.S. with its 74 percent country weighting, according to XTF.com. The fund eked out a 0.82 percent gain in 2018, which was a victory of sorts in a year marked by declines across most global equities. It’s up almost 15 percent year-to-date, or about 650 basis points greater than the performance of the MSCI ACWI NR USD Index that’s listed as its bogey by Morningstar.
The FINX fund doesn’t have a long track record, nor does the broad category of fintech. But FINX’s 70 percent total return since inception indicates that investing under the fintech umbrella could a winning strategy.
That bodes well for the new ARK Fintech Innovation ETF, and investors who want to buy into the fintech theme via an ETF now can choose between an active or a passive product.