Investment bank Keefe Bruyette & Woods (KBW) and stock exchange Nasdaq have joined to launch an index based on financial technology firms. The KBW Nasdaq Financial Technology Index tracks the performance of companies that leverage technology to deliver financial products and services. It is anticipated that the development of investment products such as exchange-traded funds will follow.
Fred Cannon, Global Director of Research at KBW.
The index identifies firms that tend to have distributions which are nearly exclusively electronic, as opposed to traditional “bricks and mortar,” and their revenue mix are predominantly fee-based. They leverage new assets such as advanced data aggregation and analysis, innovative technology, and creative thinking.
According to KBW, the growth in FinTech has been boosted by the arrival of big data and mobile technology. The sector has experienced significant funding flows into the space and the industry has enjoyed massive growth rates of 68% and 191%, reaching $3bn and $10bn in 2013 and 2014, respectively.
Fred Cannon, Global Director of Research at KBW, commented in a statement: “Technology is changing the way financial services are both created and delivered to the market, and our launch of the KBW Nasdaq Financial Technology Index reflects the investment community’s growing interest in FinTech.
“KBW has long been recognized as the specialist in financial services, and we are proud to combine our deep-rooted knowledge of FinTech with the expertise of Nasdaq as a leading index provider to bring this unique and innovative index to the market. The KFTX provides a relevant benchmark within the FinTech space, which will be valuable to the increasing number of investors closely watching this area.”
The 49 FinTech companies included in the KBW Nasdaq Financial Technology Index represent roughly one-fifth (18%) of the investable domestic financial universe and nearly 4% of the investable domestic equity universe to account for approximately $785bn in total market cap. Constituents are equal weighted in the index.
The 49 companies included in the KBW Nasdaq Financial Technology Index include names such as Alliance Data Systems, American Express, Broadridge Financial Solutions, CBOE Holdings, Euronet Worldwide, Fidelity National Information Services, Global Payments, Intercontinental Exchange, MasterCard, Moody’s, MSCI, Nasdaq, PayPal Holdings, S&P Global, The Western Union, Thomson Reuters, VeriFone Systems, and Visa.
The index, which has also been launched in a total return version, will be rebalanced quarterly and members will be updated annually on the third Friday in December.
As of 4 August 2016, it is up 8.9% year-to-date and has an annualized total return of 21.8% over the past five years.
“We are excited to continue our valued relationship with KBW and to partner on a creating a benchmark for the evolving FinTech industry,” added Dave Gedeon, Vice President and Head of Research & Development, Nasdaq Global Indexes. “The index will serve as the benchmark for investors interested in companies that leverage technology to deliver financial products and services and we look forward to collaborating on additional innovative products in the future.”
The index joins a suite of KBW Nasdaq indices which target various sectors of the financial ecosystem including banking, asset management, broker/dealer, insurance, financial technology, equity REITs and mortgage finance. With the addition of today’s index, the KBW Nasdaq index family now includes:
KBW Nasdaq Financial Technology Index
KBW Nasdaq Global Bank Index
KBW Nasdaq Bank Index
KBW Nasdaq Regional Banking Index
KBW Nasdaq Capital Markets Index
KBW Nasdaq Insurance Index
KBW Nasdaq Property & Casualty Insurance Index
KBW Nasdaq Premium Yield Equity REIT Index
KBW Nasdaq Financial Sector Dividend Yield Index
KBW Nasdaq Mortgage Finance Index
While there are no ETFs covering the financial technology space at the moment, thematic ETF issuer Global X Funds has filed papers with the US Securities and Exchange Commission to launch the Global X FinTech ETF. As the industry continues to grow, it is likely more issuers will wish to offer products that provide investors with exposure to this dynamic growth potential.