Cash may be king, but technological advancements could soon change that… So how can you capitalize on this technical evolution?
Well, how about with an ETF that invests in companies on the cutting edge?
It’s an ETF that’s out gained the S&P 500 by more than two and a half times over the last three years – earning 82.76% and crushing the 32.85% return of the S&P 500.
Last week, Bloomberg published an article titled, “The Number of ATMs Around the World Has Fallen for the First Time”.
Research shows that in 2018 the number of ATMs installed worldwide dropped by 1% to 3.24 million (According to RBR Consulting).
The two major drivers behind the drop – bank branch closures and the rising popularity of mobile and digital payments. Electronic transactions are here to stay, making the days of traditional money transactions obsolete.
It’s this continued rise in popularity and acceptance of electronic payments that can offer up opportunity. By seeking out companies that have been early adopters of the technology, you can easily find some attractive securities.
According to the Wall Street Journal, over $21 billion was sent using Venmo in the first quarter of 2019 alone, up 73% from last year.
Venmo is a mobile payment service owned by PayPal. Venmo account holders can transfer funds to other Venmo users here in the U.S. via a mobile phone app.
For example, I recently paid our babysitter via the Venmo app right from my phone and in a matter of minutes – depositing money directly to her bank account, all while I got the low-down about my sons antics of the night.
The best part? Venmo didn’t charge me (or my babysitter) a cent for the transaction.
It’s so common that “venmoing” itself has even become a millennial power verb similar to “ubering” and “googling”.
We rely heavily on digital and mobile payments in our everyday lives.
Just look at Apple Inc’s (AAPL) Apple Pay as an example. Apple Pay is a service that encompasses both mobile and digital payments, allowing users to make secure purchases in stores, in apps, and on the web using an Apple device (iPhone, iPad, Apple Watch, and/or Mac) while also allowing them to send and receive money instantly from friends and family through a simple text message.
While cash remains the most frequent and preferred method of payment in the US, the technology behind both digital and mobile payments is moving at a rapid pace.
It is also important to note that this is not just a US-based movement.
China is currently the highest adopter of mobile payment technology. According to Statista Digital Market Outlook, in China more than half a billion people will be paying with their phones in brick-and-mortar shops, cafes, and restaurants this year.
So today, I thought we’d take a look at some of the major players in the electronic transaction space.
We’ll begin by looking at two ETFs that offer exposure to the mobile and digital payments fin-tech sub-sectors.
The Purefunds ISE Mobile Payments ETF (IPAY) and the Tortoise Digital Payments Infrastructure Fund (TPAY).
Below is the year-to-date performance chart, followed by a 3 three year performance chart of IPAY.
Just this year alone (2019), IPAY has shot up 26.81%, compared to the S&P 500’s 11.22%.
Every chart tells a story, and the three year chart of IPAY is no exception. IPAY has been outgunning the S&P for the last three years, gaining 82.76% to the S&P 500’s 32.85%. Early adopters of electronic transactions continue to surge.
Next is the Tortoise Digital Payments Fund (TPAY). The fund is new, only coming to market in February, so it doesn’t have a track record, and doesn’t yet trade large volume.
But as you can see, it too is outpacing the S&P 500 Index in 2019…
But what is interesting about TPAY is that its top holdings are very similar to IPAY – which does have a track record.
In this next chart, I’ve highlighted top holdings that are shared by both these ETFs.
At a glance, it’s clear that traditional credit-card companies such as Visa Inc. (V), Mastercard Inc. (MA), and American Express (AXP), that have dominated the payment landscape for years are now also the players winning the digital/mobile payment game.
So, there’s two ways to get in on this tech evolution – an ETF, like the ones mentioned above or by investing in a few individual stock names. And a great place to start, is by doing a little digging into the top holdings of these ETFs, specifically companies like Mastercard, Visa, PayPal, Square and American Express.
If you’re interested in more information on how you can invest in the digital payment revolution, or on which Rowe Wealth Management models have exposure to this sub-sector, feel free to email us at email@example.com or by clicking here to see available phone call appointment times.
As always, invest wisely.
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