ETFS Fintech & Blockchain ETF
Exchange Code: FTEC
ETFS Fintech & Blockchain ETF (Exchange Code: FTEC) offers investors exposure to the world’s leading financial technology and blockchain companies. Fintech companies are causing a quiet revolution in financial services, helping lower costs and improve efficiency in banking, insurance, and wealth management.
FTEC aims to provide investors with a return, before fees and expenses, that tracks the performance of the Indxx Developed Markets Fintech & DeFi Index. The index contains 75 companies in developed markets, drawn from a range of fintech sub-themes. These include blockchain, data and research companies, buy now pay later companies, digital wallets—and more.
FTEC uses a full-replication strategy to track the index, meaning that it holds all the shares that make up the index. Companies are equally weighted, meaning at each rebalance the companies are bought in an equal proportion.
Why consider FTEC
Hedge against disruption to the big banks, which feature prominently in Australians’ superannuation funds.
Access fast-growing companies in an exciting new sector, while avoiding the risks that come with picking individual stocks.
Invest in the world’s leading adopters of blockchain technology.
Fintech is a combination of the words finance and technology. Fintech companies are those bringing cutting-edge technology to the financial services industry, and in the process ruffling the feathers of incumbent banks, insurers and wealth managers. Fintech adoption is surging thanks to the world going cashless, which has been a boom for digital payments and point of sale companies. By the adoption of smartphones, which has rocketed digital wallets. By the growth of big data and cloud, which has led to a surge in research providers and financial software companies and by nascent blockchain technology, which if used to its potential could disrupt much of financial services.
Decentralised finance, sometimes referred to as “blockchain”, is distributed ledger technology. Most media coverage of this exciting new area has focussed on bitcoin and other cryptocurrencies. However, there is more to blockchain than just cryptos. Promising blockchain innovations include “tokenisation”, which could allow private assets, such as real estate and cars, to trade in tokenised form in a similar way to shares in companies. Another potentially interesting area is “smart contracts”. This is where the terms of an agreement between companies are automatically executed by a blockchain, without the need for lawyers.
Indxx starts by looking at companies within developed markets that meet minimum size and liquidity requirements. Indxx then hones in on several “sub-themes”, which they – and ETF Securities – believe are relevant to fintech and decentralised finance. These sub-themes are decentralised finance, digital payments, financial data provider and analyser, financial enterprise solutions, peer-to-peer lending, personal finance software, tax compliance software, trading and capital markets, and point-of-sale. Within these sub-themes, companies are assessed based on revenue purity. Those making more than 50% of their revenue from these sub-themes are eligible for index inclusion. Companies eligible are selected based on market capitalisation, with each sub-theme capped at providing 10 companies except for decentralised finance which is capped at 20.
FTEC uses an equal weight methodology, which is where an equal value of each company included in the index is bought at rebalance. Assuming no market movements, this would mean that each of the 75 companies included in the index would receive 1.33% of the fund’s weight at each rebalance. Equal weighting may have the advantage of allowing investors to “spread their bets” across a diverse range of companies in a fast-changing industry more equally. However, equal weighting has risks. These include potentially higher volatility as it lowers the median market capitalisation of a portfolio compared with market weighted approaches.
Fintech and blockchain are rapidly evolving industries. Afterpay was founded in 2014, yet as of August 2021, it has become one of Australia’s largest companies by market capitalisation. Picking individual companies that are likely to win from any theme is very difficult. But picking winners in new areas like fintech can be harder still due to the speed at which things can change. A strength of FTEC is that it offers diversification, providing investors with a basket of 75 researched stocks that capture the fintech theme. The result is that FTEC’s portfolio is likely to be less volatile than picking individual stocks. FTEC also provides a way to access global companies in a single trade. While some fintech companies – like Afterpay and Xero – trade on Australian exchanges, most global companies do not. This spares investors the work and cost of buying a portfolio of companies on foreign exchanges. As FTEC is locally domiciled, there is also less paperwork for end investors. Investors will not be required to complete W8 BEN forms.
- To express long-term strategic or short-term tactical views on disruptive financial technology.
- To complement financial services sector exposure with tech-aligned companies outside of the GICS classification (the industry sector classification created by MSCI and S&P Dow Jones Indices).
- To aid portfolio diversification via investment in companies that are largely absent from the Australian market.