A Fancy FinTech ETF

Yesterday in The Juice, we discussed three ways ETFs can make you a better investor. Sometimes, the answer lies in not buying an ETF at all or buying a different one than the one you started your research process with. We used the Global X FinTech ETF (FINX) to illustrate that discussion. 

When you think FinTech, maybe you think PayPal (PYPL), maybe not. They’re the original it’s a bank, but not actually a bank FinTech. So, within this context, yes, PayPal all the way. 

However, if you’re thinking of the new breed of millennial and Gen Z-focused FinTech, SoFi (SOFI) and even Coinbase (COIN) likely come to mind. Even though PayPal owns Venmo, most of us don’t immediately think of PayPal when we think of Venmo. 

This said, PayPal makes up a larger percentage of FINX’s portfolio than any other ETF. At a consternation of more than 7.0%, PYPL is FINX’s top holding. COIN comes in fifth at 5.5% with SOFI a little down the list at roughly 3.5%. Another big FINX holding, who we discussed the other day in our installment about Klarna, venture capital and IPOs, is Affirm Holdings (AFRM). From there, it’s a who’s who of FinTech, alongside quite a few mainly international names most of us have likely never heard of in sub-1% concentrations. 

Sixty-one stocks in all. With an approximately 43% one-year return. However, it’s important to mention that FINX is only up about 12.5% over the last five years. It hit its highs in 2021. Since February 2021, when FINX traded for about $52 per share, the ETF is actually down 35%.

So we’re talking about considerable volatility. Which begs the question we often like to ask when we consider ETFs outside of a broad market core. What’s the point?

Sort of like, if you’re going after artificial intelligence, do you really need to buy an ETF with AI in its name. That’s marketing and a holdings list that’s too far flung to give investors the focus they crave. 

Instead, funds with “AI” and “innovation” in their name, why not the VanEck Semiconductor ETF (SMH), which is up 251% over the last five years. SMH was kicking ass and taking names long before AI went mainstream as an investment area for retail investors. Granted, it also took a hit after 2021 gains, but not that big of a hit. Plus, it quickly recovered and has done pretty much nothing other than go up since mid-to-late 2022. 

For that matter, you can get at AI better with SPY and QQQ than you can with most AI-specific ETFs. 

Which brings us back to FinTech. Why not just buy SPY and QQQ? The Juice thinks you’re better off going broad in banking, which gets you some FinTech (and exposure to some of the bigger plays who have lots of control in the space), with low-cost index ETFs such as the iShares US Financials ETF (IYF), the Financial Select Sector SPDR Fund (XLF) or the Vanguard Financials Index Fund ETF Shares (VFH). 

With expense ratios of 0.39%, 0.09%, 0.10%, respectively, each of these funds are way cheaper to own than FINX. And they all have way better and less volatile five year-returns (roughly 68.5%, 62.1% and 61.0%, respectively) than FINX.  

If you’re a long-term investor, no matter your time horizon, it almost always makes more sense to go with less expensive ETFs stocked with market leaders and a handful of more speculative emerging plays. Particularly in the core of your portfolio. Check that box, then maybe add a few of your other favorite FinTech plays as individual buys to increase and round out your exposure. 

The Bottom Line: The Juice loves the world of choice open to investors today. From alternative investments such as crypto and private equity to alts within the ETF space. However, sometimes you can get needlessly fancy. 

Define your goal. Focus on it. Then, find the lowest-cost ETFs that blend solid returns with relative safety. Save the speculation for the speculative section we all should have in our long-term portfolios. And don’t worry, The Juice will continue to deliver these ideas, as we have been this year, well into 2025 as we continue to separate the wheat from the chaff in the world of alt and otherwise non-traditional investing.