Global X FinTech ETF Struggles to Add Value in 2023

The financial technology theme has struggled to take off this year as a squeeze on investors hits funding. However, the share prices of Global X FinTech ETF’s two top holdings, Intuit and Finserv, have risen in 2023, with the latter’s deal with data expert Plaid offering potential for sector growth.

• Global X FinTech ETF’s value has fallen by 20% since July.
• Top holding Fiserv’s partnership with Plaid could revolutionise mobile banking.
• Fintech funding in the Americas rose to $35bn in the first half of 2023.

The Global X FinTech ETF [FINX] has followed a downward trajectory since its 2023 peak at the end of July, slumping by 20.5%. The fund, founded in 2016, offers exposure to companies driving innovation in the financial technology (fintech) space, including firms in banking, investment and insurance; it tracks the Indxx Global FinTech Thematic Index. Over the four weeks to 13 October, FINX fell 8.3%, but it has risen 2.3% year-to-date.

The fund’s lacklustre performance comes despite strong growth for the share price of top holding Intuit [INTU], which has risen 38% year-to-date, although growth slowed to 1.5% in the month to 13 October.

Second-largest holding, Fiserv [FI], tumbled 7.4% in the month to 13 October but grew 11.3% year-to-date. On 12 October, the payments company announced a partnership with data network experts Plaid [PLDIF], a move that could revolutionise consumer access to financial data in the fintech sector.

The fintech theme has struggled of late, driven by a downturn in venture capital as interest rates and inflation soar, factors that could be weighing on FINX’s wider performance.

Broken down by industry, as of 30 September, 50.9% of the fund’s holdings were in IT companies, followed by financials (38.9%), industrials (4.7%), communication services (3.3%) and healthcare.

Earnings of Top-two Holdings Rise

The top-holding Intuit has an 8.4% weighting in FINX. The California-based platform’s portfolio includes names such as Credit Karma, MailChimp and TurboTax.

In August, Intuit reported positive results for the fourth quarter (Q4) of FY 2022/23, delivering revenues of $2.7bn, up 12% year-over-year from $2.4bn. This beat the Zacks Consensus Estimate by 2.7%. The company posted non-GAAP earnings per share of $1.65, a rise of 50% year-over-year, also beating the Zacks estimate of $1.38. However, Intuit’s credit score arm Credit Karma saw revenue fall by 11% to $424m for the quarter.

Speaking about the earnings, CEO Sasan Goodarzi said Intuit’s “strategy to be the global artificial intelligence-driven expert platform powering prosperity for consumers and small businesses” was paying off.

FINX’s second-largest holding, payments company Fiserv, has a 6.4% weighting in its portfolio.

The partnership with Plaid means customers with almost 3,000 banks and credit unions could connect to more than 8,000 apps and services on Plaid’s network, with the sharing of financial data enabled. Jason Lazzerini, Executive Vice President and Chief Digital Officer at Central Pacific Bank, said in a Fiserv statement, “We see the partnership between Fiserv and Plaid as an important step to delivering secure open banking.”

In July, the company released its Q2 earnings for FY 2022/23; GAAP revenue was up by 7% year-over-year to $4.8bn, with 8% growth in its payments engagement and 2% in fintech. Earnings per share climbed 20% year-over-year to $1.10.

Other names in FINX’s top 10 holdings include PayPal [PYPL] and Coinbase [COIN].

US fintech leads the way

Fintech remains an expanding market as more consumers turn to online and mobile financial solutions. However, ongoing challenges for funding include high-interest rates due to tighter monetary policies. Back on 8 February 2021, the FINX fund climbed as high as $52.17 but was down 62.3% as of its last close on 13 October.

According to a report from KPMG, global fintech funding shrunk from $63.2bn in the second half of 2022 to $52.4bn in the first half of 2023. However, the consultancy noted that funding for entities in the Americas region rose from $28.9bn to $35bn in the period. This could be good news for FINX – 75.6% of its holdings were based in the US as of the end of September.

Certain segments appear to be faring better than others: KPMG’s report highlighted funding for logistics and environmental, social and governance fintech.

At CNN Business, a consensus of 25 analysts expects Inuit’s median 12-month price forecast to reach $570, up 6.9% from 13 October. Meanwhile, a consensus of 27 analysts at CNN established a 12-month price forecast median estimate for Fiserv at $144, up 28.2% from 13 October’s closing.