ETF Securities has launched a new ETF in Australia providing thematic exposure to companies disrupting the global financial industry through technology-enhanced services including those facilitating a decentralized infrastructure.
The ETF provides exposure to companies disrupting the global financial industry through technology-enhanced services.
The ETFS Fintech & Blockchain ETF (FTEC AU) has been listed on the Chi-X Australia with an expense ratio of 0.69%.
Fintech companies strive to bring cutting-edge technology to the financial services industry, ruffling the feathers of incumbent banks, insurers, and wealth managers.
Factors driving the surging adoption of fintech solutions include the trend towards a cashless society, which has been a boon for digital payments and point of sale companies; the proliferation of smartphones, which has benefitted digital wallet providers; and the growth of big data and cloud services, which has resulted in numerous opportunities for research providers and financial software companies.
Decentralized finance refers to opportunities created by distributed ledger, or blockchain, technology. While most media coverage has focused on major cryptocurrencies such as bitcoin, there is more to this segment than crypto assets.
Promising blockchain innovations include ‘tokenization’, which allows private assets such as real estate and cars to trade in tokenized form similar to shares of a company; and ‘smart contracts’, where the terms of an agreement between companies are automatically executed through the blockchain, reducing much of the need for lawyers.
Methodology
The ETF obtains exposure to the fintech theme by tracking the Indxx Developed Markets Fintech & DeFi Index which selects its constituents from a universe of developed market stocks with market capitalizations above $500 million and average daily trading volumes greater than $2m.
The methodology screens for companies deriving more than 50% of their revenue from nine fintech and decentralized finance sub-themes: digital payments, trading and capital markets, financial data analytics, point-of-sale infrastructure, personal finance software, tax compliance software & backend payment processing, decentralized finance, financial enterprise solutions, and peer-to-peer lending & crowdfunding.
The index selects the 75 largest eligible stocks while capping the number of companies from any sub-theme at 10. In order to facilitate greater exposure to blockchain-focused financial companies, the index caps the number of constituents from the decentralized finance sub-theme at 20.
Constituents are equally weighted in the index. Reconstitution and rebalancing occur on a semi-annual and quarterly schedule, respectively, with buffer rules helping to limit unnecessary turnover.
As of 15 October, almost two-thirds (62.0%) of the index weight was allocated to stocks from the US with the next-largest country exposures being Canada (4.7%), the UK (4.6%), Japan (4.1%), and Sweden (3.0%).
Stocks from the information technology and financial sectors dominate with weights of 50.9% and 36.3%, respectively, while industrial companies play a smaller role with a combined weight of 10.9%.