A Hidden Gem Among Fintech ETFs

A slew of favorable, long-term fundamental factors coupled with industry consolidation has fintech and mobile payments stocks in the spotlight.

Due to the still nascent nature of the fintech and mobile payments industries, prior to this year, there were just two exchange traded funds dedicated to these themes. The older of those two funds is not yet four years old.

What Happened

In one of this year's more under-the-radar ETF launches, the Tortoise Digital Payments Infrastructure Fund TPAY debuted at the end of January. TPAY tracks the Tortoise Global Digital Payments Infrastructure Index and is one of four ETFs in the Tortoise stable.

To be included in TPAY's underlying index, member firms must derive half of their EBITDA, gross sales, operating income or assets from mobile payments.

The index includes “companies whose primary business is comprised of one or a combination of the following categories: credit card networks, electronic transaction processing and associated products/services, credit card issuers, electronic transaction processing software (payments fintech) or online financial services market places,” according to Tortoise.

Why It's Important

Home to 54 stocks, TPAY is a cap-weighted fund, but when the fund rebalances, it caps holdings at weights of 4.5 percent, which can help mitigate some concentration risk. TPAY's top 10 holdings combine for about 46 percent of the fund's weight. That group includes PayPal Holdings Inc. PYPL, Dow components Visa Inc. V and American Express Co. AXP and Square Inc. SQ.

TPAY “invests in companies that have the potential to benefit as the world continues to evolve from traditional cash payments to the speed, accuracy and efficiency of digital payments,” according to Tortoise.

The fund, which is up 2 percent over the past month, provides “access to all participants in the fee-based credit card value chain, including merchant acquirers, processors, networks and issuers,” according to the issuer.

What's Next

Undoubtedly, TPAY offers investors exposure to a fast-growing, compelling investment theme, but like other new ETFs, it could take awhile for this fund to capture investors' attention and assets.

TPAY does have one advantage of its older fintech and mobile payments rivals: its annual fee of 0.40 percent is significantly lower than the 0.75 percent on the legacy mobile payments ETF and the 0.68 percent on the established fintech ETF.

Related Links:

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