Is This Cathie Wood ETF the Best Way to Invest in Fintech Right Now?

The fintech space is full of opportunities, but with many payment processors, software companies, e-commerce companies, and more, it can be tough to try and pick winners. So, for many investors, the best way to get exposure could be to buy a fintech-focused exchange-traded fund that owns shares of lots of companies. One that could be a good choice for investors who want to find the top fintech stocks -- as opposed to simply buying a fintech index -- is the Ark Fintech Innovation ETF (NYSEMKT: ARKF), an actively managed fund that owns a portfolio of fintech companies.

Here's an overview of what the Ark Fintech Innovation ETF invests in, what it costs, and whether it could be a good fit for you.

The Ark Fintech Innovation ETF is unique

The Ark Fintech Innovation ETF is an actively managed ETF offered by Cathie Wood's Ark Invest. Most ETFs are index funds, meaning that they track some underlying index of stocks. On the other hand, an actively managed ETF has portfolio managers choosing stocks and their weightings within the fund, with the goal of beating a benchmark index.

This ETF seeks to build a market-beating portfolio of companies that offer things like digital wallets, e-commerce services, cryptocurrencies, and much more. There are usually 35-55 different stocks in the portfolio, although it tends to be heavily concentrated in a few top holdings.

As of this writing, here's a look at the Ark Fintech Innovation ETF's top holdings:

Data source: Ark Invest. As of 8/30/2024.

These top five holdings make up about 34% of the fund's assets. To be perfectly clear, the fund's goal is to deliver outsize returns, and that means larger positions in fintech stocks that the managers think will be winners.

One downside to the Ark Fintech Innovation ETF is its cost. While a 0.75% expense ratio is quite average among actively managed funds, it is significantly higher than you'd likely pay if you simply chose a fintech index fund, as I'll discuss in the next section.

Should you buy a fintech index fund instead?

There are some broad Nasdaq and financial sector index funds that have significant exposure to fintech, but there are surprisingly few that are pure plays on the space.

One example is the GlobalX Fintech ETF (NASDAQ: FINX), which tracks an index called the Indxx Global FinTech Thematic Index. Surprisingly, there isn't a ton of overlap between the top holdings of this index and those of the Ark fund. The largest positions include PayPal, Fidelity National Information Services, Fiserv, and Intuit. Both Block and Coinbase are in the top 10 of the fund's holdings (seventh and ninth, respectively), but that's the extent of the similarity.

With an expense ratio of 0.68%, the GlobalX fund doesn't even have much of a cost advantage over the actively managed Ark ETF. Now, I'm not saying one is clearly better than the other. But they are similarly priced and offer two very different approaches to fintech investment.

What is the best approach for you?

The best choice for your fintech exposure depends on your investment goals and risk tolerance. If your goal is to invest in the fintech space's biggest winners and you have the risk tolerance to deal with volatility from a concentrated portfolio, the Ark Fintech Innovation ETF could be the better choice for you. But if you'd rather keep it simple and invest in the overall success of the fintech industry, regardless of who the big winners are, there's nothing wrong with taking a more passive approach with an index fund.

Should you invest $1,000 in Ark Fintech Innovation ETF right now?

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Matt Frankel has positions in Block, PayPal, and Shopify. The Motley Fool has positions in and recommends Block, Coinbase Global, Intuit, PayPal, and Shopify. The Motley Fool recommends the following options: short September 2024 $62.50 calls on PayPal. The Motley Fool has a disclosure policy.