Fintech ETFs are down, but not out

Financial technology stocks and sector-related exchange-traded funds have been beaten as the risk of a recession and the sell-off in the growth style weighed on the nascent industry. However, some continue to maintain their long-term view of a potentially oversold market segment.

So far this year is ARK Fintech Innovation ETF (ARKF) fell 60.2% and Global X FinTech ETF (NasdaqGM: FINX) fell 44.9%.

Concerns about rising interest rates, weak profits, untested business models and an economy heading for a potential recession have all contributed to strong sales in the fintech sector, the Financial Times reported.

Shares in recently listed fintechs have even plunged an average of over 50% since the start of 2022, compared with a 29% fall for technology-heavy Nasdaq Composite.

Dan Dolev, an analyst at Mizuho, ​​noted that fintechs, especially digital payment companies, “are the first part of the technology sector to benefit greatly from COVID, because everyone is stuck at home and buying things online.”

“Now they are over-correcting to the downside ahead of other sectors as well,” Dolev added.

Nevertheless, Dolev argued that an upturn may be on the horizon for many companies in the second half of the year as year-on-year comparisons become more comfortable for value hunters.

Meanwhile, many investors are still loyal supporters of the fintech industry. Cathie Wood’s ARK Fintech Innovation ETF, one of the most popular mutual fund funds under management dedicated to the sector, has plunged this year, but net outflow remains below $ 90 million, revealing a stable base of buy-and-hold investors. The outflows are just a drop in the bucket compared to the $ 2.7 billion in inflows in the previous two years. Investors have even added a net $ 31 million to ARKF since the beginning of June.

“It is likely that for the rest of 2022 we will continue to see some of these companies face some pressure – rising interest rates will create challenges for companies on the lending side. [buy now pay later] especially, ”Pedro Palandrani, research director at Global X, told the Financial Times.

“Despite the increased risk in the market, we have only declined around $ 40 million in net outflows so far this year … it really shows that investors continue to believe a lot in this sector in the long run,” Palandrani added.

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