Our theme of Fintech Stocks – which includes digital payments and lending players, card networks, and insurance technology players – is having a tough 2022, declining by about 25% year-to-date, marginally underperforming the Nasdaq-100 which remains down 21% over the same period. There are a couple of factors weighing down the theme. While fintech companies saw demand rise strongly through the pandemic, driven by rising e-commerce spending, an accelerated shift from cash toward digital payments, and growing interest in cryptocurrencies and digital wallets, some of these trends appear to be cooling off. For instance, e-commerce sales growth has moderated over the most recent quarter, with bellwether Amazon recording a 3% drop in retail sales over Q1. Cryptocurrency prices have also taken a hit, with bitcoin prices down by over 40% from 2021 highs, reducing retail investor interest in opening crypto accounts. The Federal Reserve is also looking to hike interest rates at a more aggressive pace to combat rising inflation and this has also made investors rotate out of high-growth, high multiple sectors such as fintechs.
So what’s the outlook for the theme? The opportunity for fintech companies is certainly large, considering the total size of the banking, lending, trading, investing, and insurance industries. Unlike the traditional financial services industry, which incurs high costs relating to branches, staffing, customer acquisition, and regulatory overhead, fintech players largely operate virtually, with asset-light models giving companies scope to drive margins as they build scale. That being said, the theme could see pressure in 2022 given the tightening monetary environment and investors reducing exposure to pandemic era winners. Within our theme, Mastercard stock has fared relatively better, declining by about 3% year-to-date. On the other side, Paypal stock has been the worst performer, with its stock down by about 53% year-to-date.
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|S&P 500 Return||1%||-13%||86%|
|Trefis Multi-Strategy Portfolio||0%||-17%||222%|
 Month-to-date and year-to-date as of 5/2/2022
 Cumulative total returns since the end of 2016