Is this Cathie Wood ETF the best way to invest in Fintech right now?

The fintech space is full of opportunity, but with so many payment processors, software companies, e-commerce companies and more, it can be difficult trying to pick winners. So for many investors, the best way to gain exposure might be to buy a fintech-focused exchange-traded fund that holds shares of many companies. One that could be a good choice for investors looking to find the best fintech stocks — as opposed to simply buying a fintech index — is Ark Fintech Innovation ETF (ARKF -3.43%)an actively managed fund that owns a portfolio of fintech companies.

Here’s an overview of what the Ark Fintech Innovation ETF invests in, how much it costs, and whether it might be right for you.

The Ark Fintech Innovation ETF is unique

Ark Fintech Innovation ETF is an actively managed ETF offered by Cathie Wood’s Ark Invest. Most ETFs are index funds, meaning they track an underlying stock index. On the other hand, an actively managed ETF has portfolio managers who choose the stocks and their weights within the fund with the aim of beat a reference index.

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

At the time of writing, here’s a look at the main holdings of the Ark Fintech Innovation ETF:

Data source: Ark Invest. From 30.08.2024.

These top five holdings represent about 34% of the fund’s assets. To be perfectly clear, the fund’s objective is to deliver huge returns, and that means larger positions in fintech stocks that the managers believe will be winners.

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

Should you buy a fintech index fund?

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

An example is GlobalX Fintech ETF (FINX -2.37%)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, Fiservand intuit. Both Block and Coinbase are in the fund’s top 10 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 that one is clearly better than the other. But they are similarly priced and offer two very different approaches to fintech investing.

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 biggest winners of the fintech space and you have the risk tolerance to handle the volatility in a concentrated portfolio, the Ark Fintech Innovation ETF might be the better choice for you. But if you prefer to 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.