An investment bank and a stock exchange launched a US focused Fintech Index. A mirror Motif was created by the community on the retail platform of Motif Investing.
This qualifies for Fintech in action.
KBW investment and Nasdaq launched this US Fintech tracker (KFTX) in mid July, that includes 49 fintechs. They are large and small caps stocks that are screened based on three criteria:
- Established companies selling technology for banking services (e.g. Fiserv, Thomson Reuters, etc) but excluding those that don’t specialize in banking (e.g. IBM, Microsoft)
- Companies that are more digital rather than brick and mortar (e.g. electronic trading over trading floor).
- Companies with revenues that are fee-based rather than capital-based. The latter resembles traditional banking revenues sources by holding positions and taking risk (e.g. loan portfolios).
The third filter allows Lending Club to be included (since it has a small asset management business) but could disqualify large marketplace lending companies when they go public, that are increasingly holding loan books through conventional asset management subsidiaries that they have created (e.g. Sofi).
The companies included in the index represent roughly 1/5 of the investable US financial sector and account for $785billion of total market cap. The index is equally weighted and will be rebalanced on a quarterly basis.
Currently, top holdings include Thomson Reuters, Fidelity, Fiserv, CME, ICE. There are more than half a dozen of small caps included (below $2bil market cap), like Envestnet, BlackHawk Network Tech, Evertec, Bofi Holding.
KBW offers a variety of financial sector indices and some of them are the basis for corresponding subsector ETFs, like banking, asset management, broker/dealer, insurance, equity REITs and mortgage finance:
- KBW Nasdaq Bank Index (BKX)
- KBW Nasdaq Regional Banking Index (KRX)
- KBW Nasdaq Capital Markets Index (KSX)
- KBW Nasdaq Insurance Index (KIX)
- KBW Nasdaq Property & Casualty Index (KPX)
- KBW Nasdaq Premium Yield Eq. REIT Index (KYX)
- KBW Nasdaq Financial Sector Dividend Yield Index (KDX)
- KBW Nasdaq Global Financials (ex-U.S.) Index (KGX)
- KBW Nasdaq Mortgage Finance Index (MFX)
An index can lead the way to the creation of thematic wrappers like ETFs and nowadays to motifs which start with a 100% mirror copy of the index and can be customised by the Motif community. The creator of the Motif Fintech tracker, which is the 100% mirror copy of KFTX, has already customised a another financial subsector motif, the Digital Dollars. The Motif investing capability to customise existing motifs, is a powerful one for DIY investors and allows for transparent and dynamic rebalancing of portfolios.
We started creating and tracking the Daily Fintech Index, more than a year ago. It started with two dozen companies and with global coverage. An up-to-date and enhanced version of the Daily Fintech Index is in the works and will be tracked on a platform that can host such a global portfolio and offer at the same dynamic tracking of a few fundamental indicators that we have chosen as critical (e.g. PEG). This conversation is happening on the Fintech Genome here.
Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network. Efi Pylarinou is a Digital Wealth Management thought leader.