Rize launches thematic ETF for the digital payments economy

Nov 11th, 2021 | By | Category: Equities

European thematic specialist Rize ETF has unveiled a new fund providing exposure to companies forming the backbone of the digital payments economy.

Rize launches thematic ETF for the digital payments economy

The fund is the only ETF in Europe to combine conventional fintech with exposure to companies in the crypto-asset ecosystem.

The Rize Digital Payments Economy UCITS ETF offers a liquid, low-cost vehicle for investors to tap into the growth associated with the structural transition away from traditional cash payments to the speed and convenience of digital wallets, digital payments, and digital currencies.

According to Rize, the fund delivers a unique proposition as it is the only ETF in Europe that combines conventional fintech, such as card payment networks, payment processors, and payment infrastructure providers, with pioneers in the burgeoning crypto-asset ecosystem.

Commenting on the launch, Rahul Bhushan, co-Founder and Director at Rize ETF, said: “Our new investment strategy and ETF is a nod to the inevitability that financial services are succumbing to digitisation. In the past decade alone, a new and powerful economy for digital payments has emerged, offering speed, agility and convenience. But we believe this to be just the start.

“Ecommerce growth, enthusiastic adoption of transparent payment experiences, and alternative payment methods are driving non-cash transaction momentum, merging with technologies like wearables, biometrics, and blockchain, and challenging traditional banks – institutions that have long monopolized payment networks and hindered innovation and technological progress. Fortunately, these strangleholds are now unraveling.”

Growth in the digital payments economy is being supported by several converging tailwinds including increasing smartphone penetration, evolving digital infrastructure, innovations within mobile, artificial intelligence, and blockchain technology, and the accelerated adoption of contactless payments due to the Covid-19 pandemic.

The segment is also being powered by its revolutionary potential, not only to improve speed and convenience of transactions, but to reduce costs, enhance trust, and benefit historically underserved members of society.

Reflecting this enormous potential, analysts at Deutsche Bank have estimated that the number of digital wallet users globally will grow from 2.3 billion in 2021 to nearly 4bn, or 50% of the world’s population, by 2024, while mobile payments are expected to comprise 40% of in-store purchases in the US within five years, quadruple their current level.

German market intelligence firm Statista, meanwhile, has predicted that the value of global digital payments transactions will grow at a rate of 12% per year, reaching $10.5 trillion by 2025.

Investment approach

The ETF tracks the Foxberry Digital Payments Economy Index, an index co-developed by Rize, index administrator Foxberry, and research firm Euromonitor International.

The index selects its constituents from a universe of stocks listed in developed and select emerging markets. To be eligible for inclusion, a company must have a market capitalization greater than $500 million and an average daily turnover above $2m.

Harnessing insights from Euromonitor, companies in the universe are assigned thematic relevance scores based on the percentage of revenue derived from five sub-themes related to the digital payments economy: card payment networks; payment processors; payment infrastructure providers; payment services and solutions providers; and digital/crypto currency pioneers.

Thematic relevance scores range from 1 to 5. Firms deriving less than 20% of their revenue from the sub-themes receive a score of 1, firms deriving between 20% and 40% of their revenue from the sub-themes receive a score of 2, and so on with firms deriving between 80% and 100% of their revenue from the digital payments economy receiving the highest score of 5.

The index selects all constituents with thematic relevance scores of 3 or higher and weights them according to their scores. Reconstitution and rebalancing occur semi-annually.

As of 11 November, the index contained 60 constituents with stocks from the US accounting for just over half (55.5%) of the total weight and the next-largest country exposures being Japan (11.1%), Australia (4.4%), Canada (3.7%), and the Netherlands (3.4%).

Notable positions included Nuvei (3.7%), Greensky (3.7%), Adyen (3.4%), Coinbase (3.4%), and Silvergate (3.1%).

The ETF has been listed on London Stock Exchange in US dollars (Ticker: PMNT LN) and pound sterling (PAYG LN) with further listings on Xetra (PMNT GY) and Borsa Italiana (PMNT IM) in euros, as well as on SIX Swiss Exchange (PMNT SW) in Swiss francs expected in the near future.

The fund comes with an expense ratio of 0.45%.

The launch extends Rize’s thematic ETF line-up to six products, collectively housing around $500m in assets. Other funds in the suite include ETFs targeting cybersecurity, medical cannabis, sustainable food, education technology, and environmental impact.

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