In 2020, the number of active online banking users was approaching 1.9bn worldwide. Forecasts suggest that number could reach 2.5bn by 2024, highlighting the vast reach in just one segment of this theme,1 and the global bitcoin market is expected to surpass USD$5.4bn by 2030.2
Fintech and blockchain are global themes, poised to benefit as both expanding broadband and mobile internet penetration coincide with a rising middle class in developing markets, historically under-served by traditional financial services, and government and industry seek to improve the accuracy, transparency, and security of financial transactions.
Changing Consumer Preferences
While Fintech companies have historically catered to the digital preferences of younger consumers, they are increasingly competing on cost and convenience across a range of more established industries like lending and insurance. 58 countries now offer bitcoin ATMs.3
1 Statista, Mar 2021
2 MarketWatch, Oct 2021
3 Statista, Aug 2021
Product Information As of 8 Dec 2023
13 Oct 2021
Management Costs (% p.a.)
Managed Investment Trust
NAV Information As of 8 Dec 2023
The Global X Fintech & Blockchain ETF (FTEC) seeks to invest in companies on the leading edge of the emerging financial technology sector, which encompasses a range of innovations helping to transform established industries like insurance, investing, fundraising, and third-party lending through unique mobile and digital solutions. This theme also includes those positioned to benefit from the increased adoption of blockchain technology, including companies in digital asset mining, blockchain & digital asset transactions, blockchain applications, blockchain & digital asset hardware, and blockchain & digital asset integration.
The Global X Fintech & Blockchain ETF (FTEC) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Indxx Developed Markets Fintech & DeFi Index.
FTEC AU Equity
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Global X Management (AUS) Limited
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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.
What is “decentralised finance”?
Decentralised finance, sometimes referred to as “blockchain”, is distributed ledger technology. Most media coverage of this exciting new area has focused 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.
How are the companies in the index identified?
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 Global X – 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.
How are companies in FTEC weighted?
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.
Why use FTEC for exposure to fintech?
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.
How can you use FTEC in a portfolio?
1. To express long-term strategic or short-term tactical views on disruptive financial technology.
2. 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).
3. To aid portfolio diversification via investment in companies that are largely absent from the Australian market.
Does FTEC overlap with other Global X funds?
We design our ETFs with a view of minimising the amount of overlap between each. In this way, investors who buy more than one of our funds avoid buying the same stocks repeatedly. The precise amount of overlap between each fund can differ as the stocks moving in and out of each ETF change at index rebalance/reconstitution. Whatever overlap exists is usually small. For investors wanting to know the exact quantity of overlap between specific ETFs, please feel free to contact us.
Where can I buy and sell FTEC?
When it launched, FTEC was listed on the CBOE exchange, the alternative exchange to the ASX. This means that if your broker is not connected to CBOE, then you will be unable to buy and sell FTEC. Most share trading platforms (such as CommSec, Open Markets, Wealthhub and more) are connected to the CBOE exchange and can facilitate your trade. If the platform you use is not connected with CBOE or you are having difficulties locating FTEC online, then we suggest contacting their trade and support team to enquire what is the best possible way to trade FTEC.
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