Legal & General Investment Management has launched a new thematic equity ETF in Europe providing exposure to companies poised to benefit from the global transition to a cashless economy.
Howie Li, Head of ETFs at LGIM.
The L&G Digital Payments UCITS ETF has listed on the London Stock Exchange in US dollars (DPAY LN) and pound sterling (DPAG LN), and on Xetra (DPGA GY) and Borsa Italiana (DPAY IM) in euros.
It carries an expense ratio of 0.49%.
Investment case
Currently valued at approximately $58 billion, the global digital payments market is expected to grow at a 19.4% compound annual growth rate between 2021 and 2028, according to market research consultants Grand View Research.
Secular trends driving this growth include the penetration of mobile phones globally, an increasingly tech-focused consumer population, the rise of e-commerce and other digital-payment-focused industries such as online gaming, and the introduction of peer-to-peer payment systems. The digital payments industry is also expected to benefit from government support due to its ability to greatly improve tax collection.
Alongside this, LGIM notes that digital payment technology is helping to broaden global financial inclusion while also supporting several UN Sustainable Development Goals including promoting innovation, building infrastructure, and enhancing economic growth. Digital financial services also help families to save money, protect assets against risk, allow the efficient government transfer of wages and pensions, and help small retailers increase their revenues.
Owing to these credentials, the fund is categorized as Article 8 under the EU’s Sustainable Finance Disclosure Regulation (SFDR).
Index methodology
The ETF is linked to the Solactive Digital Payments Index which selects its constituents from a universe of stocks listed in developed markets including South Korea and Taiwan. Eligible companies must have a minimum free-float market capitalization of $200 million and an average daily trading volume above $1m.
The index harnesses the expertise of Payments Cards & Mobile (PaymentsCM), a research and consultancy firm specializing in the digital payments industry, to screen for companies across four segments of the digital payments value-chain: payment acquirer and card issuers, payment gateways and processors, payment technology providers, and card-less payment service providers.
To make the cut for index inclusion, a constituent must rank in the top 20% of its segment according to a proprietary ‘Market Leadership Score’ calculated by Payments CM and derive more than a certain threshold of revenue from the digital payments industry.
Constituents are equally weighted in the index, although stocks with lower liquidity may be capped between 1% and 3%. Reconstitution and rebalancing occur on a semi-annual basis.
‘Significant growth potential’
Commenting on the launch, Howie Li, Head of ETFs at LGIM, said: “The digital payments revolution offers significant growth potential, underpinned by secular, long-term dynamics including the global shift to e-commerce, greater adoption of smartphones in emerging markets, and developing safe, secure online payments. Investing in this theme can give investors the opportunity to contribute to the global financial inclusion movement as we seek to meet the UN SDGs.”
James Crossley, Head of UK Retail Sales at LGIM, added: “We are seeing sustained demand from investors for targeted exposure to the long-term, structural trends that are changing our world. The launch of the L&G Digital Payments UCITS ETF expands our successful thematic range, equipping our clients to gain access to the growth of the cashless economy through a highly liquid product.”