Fintech is more than a popular buzzword, says Fidelity’s Chuck Culp: The integration of financial services with technology is changing how consumers and businesses manage their finances, while opening fast-growing markets and driving market-share shifts.
Culp believes fintech presents long-term opportunities to invest in companies that are disrupting the status quo in global financial services.
“I see potential for fintech firms to reshape banking, trading, and payments, while also shifting financial services market share to companies such as software providers that can embed financial products in their offerings,” says Culp, portfolio manager of Fidelity® Select FinTech Portfolio (FSVLX), the newly repositioned successor to Fidelity® Select Consumer Finance Portfolio, which Culp managed since 2018. “Many of these firms are providing cost efficiencies, time savings, and conveniences that appeal to a broad range of customers.”
The fund repositioning, effective October 23, is intended to provide Culp broader investment opportunities that are in line with changes in the consumer finance industry due to advancements in technology and changes in consumer and business habits.
Culp notes that fintech’s appeal is strongest for new consumers of financial services, including customers in emerging markets, as well as younger people in developed markets.
Importantly, Culp adds that during the pandemic, fintech’s reach expanded to older generations as well, as more people tried new services out of necessity.
In addition, he notes, business customers are embracing financial products embedded in business software, including short-term loans, simplified bill payment, and streamlined accounting. “Financial products embedded in software can reduce costs and simplify the complexity of managing a business,” according to Culp.
Culp sees long-term growth opportunities among fintech enablers, such as Visa (V) and Mastercard (MA), two companies he believes benefit from the overall growth of digital finance. Each was a top-10 holding as of September 30. He also cited smaller investments in payment processors Global Payments (GPN), PayPal Holdings (PYPL), and Canada-based Nuvei (NVEI), the latter a provider of payment processing for e-commerce.
Culp notes the fund has also invested in several emerging-markets companies that provide financial services, including “digital wallets” as part of broader commerce ecosystem. These names include e-commerce provider MercadoLibre (MELI) in Latin America, and two Singapore-based firms: online gaming and shopping company Sea Limited (SE) and transportation and food delivery-focused Grab Holdings/Altimeter Growth (AGC).
Lastly, he pointed to several traditional financial services companies with technology that seeks to engage with customers digitally, such as U.S.-based Capital One Financial (COF) – the fund’s top holding at the end of September – and Ally Financial (ALLY).
“I’m looking all over the world for the companies I think have the business models that position them to take part in what I think will be a multi-decade embrace of fintech that is still gaining momentum,” Culp says.
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