The rise of digital fintech technology both during and after the COVID-19 pandemic is powering the growth of the Innovation Shares NextGen Protocol ETF [KOIN] which is groups hardware and software technology shares.
KOIN has climbed 40% over the last 12 months to sit at $44.25 at the close on 29 October.
The pandemic has been particularly good for the sector and KOIN as employees had to work from home during lockdown and relied on technology for everything from communications to electronic payments to ensure they did their jobs well and securely.
The rise of e-commerce has also benefited companies involved in areas such as digital payments, electronics and at-home entertainment such as video games which are particularly relevant for KOIN shares.
Predicted valuation of the global fintech market by 2026
According to Market Data Forecast, the global fintech market is expected to reach a market value of $324bn by 2026 at a compound annual growth rate of 23.4%. The main drivers will be payments, e-commerce, banking, social commerce and wealth management.
Analysts are bullish about the future of fintech. ZMK Capital wrote in Seeking Alpha, “Financial innovation will be a theme of the future. Broad deregulation coupled with technological innovation is increasingly providing a platform for firms to bring to market ground-breaking value propositions.”
Detractors weighing KOIN
The recent semiconductor shortage has weighed down companies KOIN has invested in. The shortages have proven difficult for carmakers to electronics companies and were further accentuated by the global supply chain squeezes. These could be lethal for some of KOIN’s components.
An economic downturn that could put pressure on the capital spending plans of companies, especially SMEs can also hurt the KOIN share price.
In some countries, such as the UK, the rise of technology has also exposed a sizeable digital skills gap. As a result, while the technology offered by companies in the KOIN may be great, there are no users for it, and therefore no buyers.
Fortunately, this is a problem that KOIN companies like Salesforce are addressing. The company has rolled out digital learning courses intended to help people to upskill.
“Financial innovation will be a theme of the future. Broad deregulation coupled with technological innovation is increasingly providing a platform for firms to bring to market ground-breaking value propositions” - ZMK Capital
Parts of KOIN
Launched in January 2018, the KOIN has 43 holdings. Nvidia Corporation [NVDA] has the biggest weighting of 4.6%, Salesforce [CRM] has 4.33%, Microsoft [MSFT] 4.2%, Nestle [NESN] 4.1%, Amazon [AMZN] 3.95% and Taiwan Semiconductor [TSM] 3.82%, as of 28 October.
The ETF tracks the performance of the ATFI Global NextGen Fintech Index, which was developed to capture the performance of diversified exposure to companies that use, or are involved in, the innovation of fintech technology.
This comprises digital asset providers —companies that use technology to increase operational sciences, optimise settlement processes, enhance the customer experience, increase data security/integrity and create digital assets.
It includes solution providers or companies that assist financial services businesses and organisations in the adoption and implementation of the latest technologies and applications.
The ETF also provides exposure to those investors interested in cryptocurrency payments but are too risk-averse to invest directly into this volatile space.
Number of holdings in the KOIN ETF
Sum of its constituents
Shares in Nvidia have rocketed 99% over the last 12 months as its chips have helped to power video games, cryptocurrency miners and data centres. It recently reported record second-quarter revenues of $6.51bn, up 68% from a year earlier.
Salesforce’s revenues have shot up as companies accelerate their digital transformation, while Amazon has benefited from the surge in e-commerce and people staying indoors to watch its Prime streaming service.
Taiwan Semiconductor has also performed well, buoyed by a global shortage in semi-conductors and subsequent price hikes.
KOIN, according to Yahoo Finance, has recorded a year-to-date total daily return of 15.39% and has total assets of $30.9m.
Overall, fuelled by the digital transformation and rise in online payments including increasing cryptocurrency, there is plenty more room it seems for KOIN to grow.