Fintech

ARKF: Rate Cut Hopes Fade, Fintech Rally Stalls in 2024

Published

10 months ago

1 July, 2024

vm/E+ via Getty Images

At the start of the year, bond traders were pricing in rate cuts of nearly six quarter points for 2024. That number rose to nearly 170 basis points at the start of the first quarter, benefiting long-dated assets and stocks small-cap growth. The idea was that a slowing economy would eventually turn into a recession, prompting the U.S. Federal Reserve and other central banks to cut policy rates. But solid economic data prevailed, and one by one, rate cuts were knocked off the board this year. Not surprisingly, the same rate-sensitive stocks that had led the market in October 2023 have lost momentum. This includes many of Cathie Wood’s “ARK” type names.

I am downgrading ARK Fintech Innovation ETF (NYSEARCA:ARKF) from buy to hold. The stock has risen modestly this year (total return), significantly underperforming the S&P 500’s 15%, and I think its high-growth portfolio is somewhat risky in the current “higher for longer” environment as technicals have become less optimistic.

Fewer rate cuts expected through 2024, a headwind for speculative growth stocks

BofA Global Search

According to issuerARKF is an actively managed ETF that seeks long-term capital growth. It seeks to achieve this investment objective by investing under normal circumstances primarily (at least 80% of its assets) in domestic and foreign equity securities of companies engaged in the Fund’s investment theme of financial technology innovation (“Fintech”).

ARKF has lost assets over the past six months. Total assets under management now stand at just $893 million, down from $1.2 billion when I first looked at the ETF. Stock price momentum has slowed, now earning just a B- Grade ETF from Seeking Alpha, compared to an A+ rating a quarter ago and at the end of 2023. The fund high annual expense ratio of 0.75% it’s a considerable cost, and the fund did not pay dividends in the last 12 months.

ARKF is considered a risky ETF given both its concentrated allocation and the high volatility parameters of recent months. Liquidity is healthyhowever, given an average daily volume of nearly 400,000 shares and an average 30-day bid/ask spread of four basis points as of June 27, 2024, according to ARK Invest.

Looking more closely at the portfolio, the 1-star, negative Morningstar-rated ETF focuses on the growth side of the style with mixed exposure across the size spectrum. As such, the fund is dependent on low interest rates because the growth stocks it owns are not as profitable as some of the free cash flow stalwarts in the mega-cap space. While ARKF’s P/E has fallen by about 5 rounds, it remains an expensive fund with a solid growth rating.

ARKF: portfolios and factor profiles

Morning Star

ARKF is also quite focused on only a handful of sectors. IT represents the largest weighting, at almost 42%, while financials, at 26%, represent another significant overweight. But many of the portfolio companies fall into the same “fintech” mold, a niche that continues to struggle under conditions of restrictive monetary policy.

Still, with bitcoin above $60,000, the fund’s cryptocurrency holdings are well-positioned. Of course, a key risk is that investors could own bitcoin outright in a brokerage account via a spot bitcoin ETF, which is different from when I wrote about the fund last December.

ARKF: A Concentrated Allocation

In Search of the Alpha

Seasonally, July has been the best month historically for ARKF. Although the sample size is small, just five years, we saw strong rallies to kick off the second half. However, volatility has tended to hit the second half of the third quarter.

ARKF: July Seasonal Bullish Story

In search of the Alpha

The technical grip

I was hoping that ARKF would continue its strong uptrend that began in October last year when the calendar flipped to 2024. There was a stumble early on, but shares managed to make multi-quarter highs by March. After peaking just below $31, shares are simply consolidating. This is not a decidedly bearish move, considering that ARKF’s 200-day long-term moving average remains up and the ETF continues to print a series of higher lows.

So, I don’t feel all that negative about momentum, despite the fund’s significant relative underperformance versus the S&P 500. But let’s look at the RSI momentum oscillator at the top of the chart: it remains in a tepid range between 30 and 55. Major support comes into play around $26, the May low and where the 200-day moving average will soon come into play. $31 remains resistance.

Overall, with little relative strength and decent absolute technical trends, the ARKF chart is mixed.

ARKF: Stock Consolidation, Key Support Near $26, 200-DMA Growth

Stock Charts.com

The bottom line

I have a hold rating on ARKF. The fintech fund failed to maintain its solid momentum from the October low. Fundamentally, the portfolio could continue to be tight as interest rates remain elevated relative to the average of the past five-odd years.

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Fintech

US Agencies Request Information on Bank-Fintech Dealings

Published

9 months ago

30 July, 2024

FinCrypt Staff

Federal banking regulators have issued a statement reminding banks of the potential risks associated with third-party arrangements to provide bank deposit products and services.

The agencies support responsible innovation and banks that engage in these arrangements in a safe and fair manner and in compliance with applicable law. While these arrangements may offer benefits, supervisory experience has identified a number of safety and soundness, compliance, and consumer concerns with the management of these arrangements. The statement details potential risks and provides examples of effective risk management practices for these arrangements. Additionally, the statement reminds banks of existing legal requirements, guidance, and related resources and provides insights that the agencies have gained through their oversight. The statement does not establish new supervisory expectations.

Separately, the agencies requested additional information on a broad range of arrangements between banks and fintechs, including for deposit, payment, and lending products and services. The agencies are seeking input on the nature and implications of arrangements between banks and fintechs and effective risk management practices.

The agencies are considering whether to take additional steps to ensure that banks effectively manage the risks associated with these different types of arrangements.

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Fintech

What changes in financial regulation have impacted the development of financial technology?

Published

9 months ago

30 July, 2024

FinCrypt Staff

Exploring the complex landscape of global financial regulation, we gather insights from leading fintech leaders, including CEOs and finance experts. From the game-changing impact of PSD2 to the significant role of GDPR in data security, explore the four key regulatory changes that have reshaped fintech development, answering the question: “What changes in financial regulation have impacted fintech development?”

PSD2 revolutionizes access to financial technology
GDPR Improves Fintech Data Privacy
Regulatory Sandboxes Drive Fintech Innovation
GDPR Impacts Fintech Data Security

PSD2 revolutionizes access to financial technology

When it comes to regulatory impact on fintech development, nothing comes close to PSD2. This EU regulation has created a new level playing field for market players of all sizes, from fintech startups to established banks. It has had a ripple effect on other markets around the world, inspiring similar regulatory frameworks and driving global innovation in fintech.

The Payment Services Directive (PSD2), the EU law in force since 2018, has revolutionized the fintech industry by requiring banks to provide third-party payment providers (TPPs) with access to payment services and customer account information via open APIs. This has democratized access to financial data, fostering the development of personalized financial instruments and seamless payment solutions. Advanced security measures such as Strong Customer Authentication (SCA) have increased consumer trust, pushing both fintech companies and traditional banks to innovate and collaborate more effectively, resulting in a dynamic and consumer-friendly financial ecosystem.

The impact of PSD2 has extended beyond the EU, inspiring similar regulations around the world. Countries such as the UK, Australia and Canada have launched their own open banking initiatives, spurred by the benefits seen in the EU. PSD2 has highlighted the benefits of open banking, also prompting US financial institutions and fintech companies to explore similar initiatives voluntarily.

This has led to a global wave of fintech innovation, with financial institutions and fintech companies offering more integrated, personalized and secure services. The EU’s leadership in open banking through PSD2 has set a global standard, promoting regulatory harmonization and fostering an interconnected and innovative global financial ecosystem.

Looking ahead, the EU’s PSD3 proposals and Financial Data Access (FIDA) regulations promise to further advance open banking. PSD3 aims to refine and build on PSD2, with a focus on improving transaction security, fraud prevention, and integration between banks and TPPs. FIDA will expand data sharing beyond payment accounts to include areas such as insurance and investments, paving the way for more comprehensive financial products and services.

These developments are set to further enhance connectivity, efficiency and innovation in financial services, cementing open banking as a key component of the global financial infrastructure.

Sebastian Malczyk

General Manager, Technology and Product Consultant Fintech, Insurtech, Miquido

GDPR Improves Fintech Data Privacy

Privacy and data protection have been taken to another level by the General Data Protection Regulation (GDPR), forcing fintech companies to tighten their data management. In compliance with the GDPR, organizations must ensure that personal data is processed fairly, transparently, and securely.

This has led to increased innovation in fintech towards technologies such as encryption and anonymization for data protection. GDPR was described as a top priority in the data protection strategies of 92% of US-based companies surveyed by PwC.

Arid Islam

Financial Expert, Sterlinx Global

Regulatory Sandboxes Drive Fintech Innovation

Since the UK’s Financial Conduct Authority (FCA) pioneered sandbox regulatory frameworks in 2016 to enable fintech startups to explore new products and services, similar frameworks have been introduced in other countries.

This has reduced the “crippling effect on innovation” caused by a “one size fits all” regulatory approach, which would also require machines to be built to complete regulatory compliance before any testing. Successful applications within sandboxes give regulators the confidence to move forward and address gaps in laws, regulations, or supervisory approaches. This has led to widespread adoption of new technologies and business models and helped channel private sector dynamism, while keeping consumers protected and imposing appropriate regulatory requirements.

George Blandford

Co-founder, UK Linkology

GDPR Impacts Fintech Data Security

A big change in financial regulations that has had a real impact on fintech is the 2018 EU General Data Protection Regulation (GDPR). I have seen how GDPR has pushed us to focus more on user privacy and data security.

GDPR means we have to handle personal data much more carefully. At Leverage, we have had to step up our game to meet these new rules. We have improved our data encryption and started doing regular security audits. It was a little tricky at first, but it has made our systems much more secure.

For example, we’ve added features that give users more control over their data, like simple consent tools and clear privacy notices. These changes have helped us comply with GDPR and made our customers feel more confident in how we handle their information.

I believe that GDPR has made fintech companies, including us at Leverage, more transparent and secure. It has helped build trust with our users, showing them that we take data protection seriously.

Dr. Rhett Stubbendeck

CEO & Co-Founder, Leverage Planning

Source

Fintech

M2P Fintech About to Raise $80M

Published

9 months ago

30 July, 2024

FinCrypt Staff

Application Programming Interface (API) Infrastructure Platform M2P Financial Technology has reached the final round to raise $80 million, at a valuation of $900 million.

Specifically, M2P Fintech, formerly known as Yap, is closing a new funding round involving new and existing investors, according to entrackr.com. The India-based company, which last raised funding two and a half years ago, previously secured $56 million in a round led by Insight Partners, earning a post-money valuation of $650 million.

A source indicated that M2P Fintech is ready to raise $80 million in this new funding round, led by a new investor. Existing backers, including Insight Partners, are also expected to participate. The new funding is expected to go toward enhancing the company’s technology infrastructure and driving growth in domestic and international markets.

What does M2P Fintech do?

M2P Fintech’s API platform enables businesses to provide branded financial services through partnerships with fintech companies while maintaining regulatory compliance. In addition to its operations in India, the company is active in Nepal, UAE, Australia, New Zealand, Philippines, Bahrain, Egypt, and many other countries.

Another source revealed that M2P Fintech’s valuation in this funding round is expected to be between USD 880 million and USD 900 million (post-money). The company has reportedly received a term sheet and the deal is expected to be publicly announced soon. The Tiger Global-backed company has acquired six companies to date, including Goals101, Syntizen, and BSG ITSOFT, to enhance its service offerings.

According to TheKredible, Beenext is the company’s largest shareholder with over 13% ownership, while the co-founders collectively own 34% of the company. Although M2P Fintech has yet to release its FY24 financials, it has reported a significant increase in operating revenue. However, this growth has also been accompanied by a substantial increase in losses.

Source

Fintech

Scottish financial technology firm Aveni secures £11m to expand AI offering

Published

9 months ago

30 July, 2024

FinCrypt Staff

Aveni, Investment Management, AI, NLP, UK

By Gloria Methri

Today

To come
Aveni Assistance
Aveni Detection

Artificial intelligence Financial Technology Aveni has announced one of the largest Series A investments in a Scottish company this year, amounting to £11 million. The investment is led by Puma Private Equity with participation from Par Equity, Lloyds Banking Group and Nationwide.

Aveni combines AI expertise with extensive financial services experience to create large language models (LLMs) and AI products designed specifically for the financial services industry. It is trusted by some of the UK’s leading financial services firms. It has seen significant business growth over the past two years through its conformity and productivity solutions, Aveni Detect and Aveni Assist.

This investment will enable Aveni to build on the success of its existing products, further consolidate its presence in the sector and introduce advanced technologies through FinLLM, a large-scale language model specifically for financial services.

FinLLM is being developed in partnership with new investors Lloyds Banking Group and Nationwide. It is a large, industry-aligned language model that aims to set the standard for transparent, responsible and ethical adoption of generative AI in UK financial services.

Following the investment, the team developing the FinLLM will be based at the Edinburgh Futures Institute, in a state-of-the-art facility.

Joseph Twigg, CEO of Aveniexplained, “The financial services industry doesn’t need AI models that can quote Shakespeare; it needs AI models that deliver transparency, trust, and most importantly, fairness. The way to achieve this is to develop small, highly tuned language models, trained on financial services data, and reviewed by financial services experts for specific financial services use cases. Generative AI is the most significant technological evolution of our generation, and we are in the early stages of adoption. This represents a significant opportunity for Aveni and our partners. The goal with FinLLM is to set a new standard for the controlled, responsible, and ethical adoption of generative AI, outperforming all other generic models in our select financial services use cases.”