Fintech—the nexus of finance and technology—is undeniably a huge investment opportunity. But a major factor in whether investors are successful is how they define fintech.
After all, there’s a big difference in between a fintech investment strategy that bought shares of credit card and digital payments companies
(V), and one that invested in pure-play fintech lenders
On Deck Capital
(ONDK). With the latter portfolio, you’d be hard-pressed to find a way not to reap triple digit-returns over the past few years. With the former, it’d take extraordinary market timing just to stay out of the red.
But fintech isn’t a type of company or even a subset of finance, KBW’s Hari Sivakumaran wrote in a note to clients on Monday. Instead, “it refers to a company’s state of technological innovation and can be measured quantitatively and qualitatively as business models adapt to technologically-based products, services, and operational infrastructure,” he wrote.
He used that definition to look at more than 650 financial stocks in Europe and the U.S. and highlighted stocks of companies that are well-positioned to take advantage of key industry and consumer trends.
In the U.S., Sivakumaran highlights real estate as one of the industries “on the cusp of a digital sea change.” Venture capital investments in real estate technology through the first nine months of 2019 hit $13.8 billion, up from $7.9 billion over the same period last year.
This is “forcing real estate incumbents to re-examine their digital strategies and recognize that technology is no longer just a back-office function used to keep the lights on,” he wrote. “Rather, it presents an opportunity to revolutionize antiquated processes and improve client results, potentially augmenting expected returns for real estate overall.”
In the so-called proptech space, KBW has Outperform ratings on
(CSGP), a real-estate data and analytics company, and
(RP), a property management software company.
Another area highlighted by Sivakumaran is the continued digitization of fixed-income trading. To give a sense of just how big an opportunity this is, he pointed out that just about a quarter of the total notional volume in the high-grade corporate bond market was executed electronically last year. In the high-yield bond market, that number was just 10%. He highlights
(TW) as two companies will benefit from the push toward e-trading in the bond market.
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