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Robeco FinTech turns three as industry gathers momentum

Robeco FinTech turns three as industry gathers momentum

14-12-2020 | インサイト
In just a few years, fintech has gone from being a nice niche investment concept to become one of the most coveted playfields for equity investors. As a pioneer in trends and thematic investing, Robeco was among the first asset managers to offer the possibility to focus on the opportunities offered by this industry, with the launch of a dedicated FinTech strategy, back in November 2017.
  • Patrick  Lemmens
    Patrick
    Lemmens
    Portfolio Manager Global FinTech Equities
  • Koos  Burema
    Koos
    Burema
    Portfolio Manager
  • Michiel  van Voorst
    Michiel
    van Voorst
    Fund Manager Equities

Speed read

  • We identify three main growth areas for fintech
  • Successful investing in fintech requires a time-tested approach
  • Three-year track record already shows strong performance

Most of the structural trends we identified at the time unfolded much faster than our teams had initially anticipated. For instance, the already fast-paced move away from cash transactions towards electronic payments has been accelerated even further by the Covid-19 pandemic, as measures taken to limit contagion hampered traditional retail activities and boosted e-commerce globally.

The past few years also witnessed a change in the sector’s center of gravity, away from the US and closer to emerging Asian giants, China and India. In these countries, fintech enjoys several tailwinds, including the lack of legacy infrastructure, high penetration rates of smartphones, and governments that view fintech as a key tool to improve financial inclusion.

For the coming years, we see growth in three key areas. First, the rise of digital payments means huge opportunities for the sector. Second, the need for traditional banks to go fully digital should drive demand for fintech firms offering products that will help this transition. Third, growing access to online financial services in China and India should fuel demand for fintech in these two countries.

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Accelerating growth in digital payments

The Covid-19 crisis accelerated the secular rise of non-cash transactions seen over the past decades, as social distancing boosted e-commerce. In the US, e-commerce penetration, as a percentage of retail sales, jumped from 16% to 27% in just eight weeks, during the “great lockdown” in the spring of 2020.1 This compares to a much slower rise, from 5% to 16%, seen in the previous 10 years.

Figure 1: The great acceleration of ecommerce in the US

Source: Bank of America, US Department of Commerce, ShawSpring Research. 2020.
This acceleration creates tremendous opportunities for digital payments, not just in developed countries, but also in emerging ones, where large parts of the population are leapfrogging from to cash to digital wallets. E-commerce is not new to these countries, but improved technology and increased consumer trust in online purchases, is boosting the transition.

China and India set to take the lead

Emerging markets, which have traditionally suffered from a limited availability of financial services, are benefitting greatly from new technologies in the financial sector. Fintech finds a natural home in these markets, where the penetration of banking and insurance services is low. China and India, for instance, have developed bustling sophisticated local fintech ecosystems.

In China, the rise of firms such as Ant Group and WeBank2  illustrates how the lack of a traditional infrastructure – brick-and-mortar banks and conventional payment methods – can turn out to be a blessing in disguise for the fintech industry. In India, rapid demonetization has triggered a fintech revolution and led to many startups and companies spending capital to build fintech businesses.

Banks going fully digital

In recent years, traditional banks have invested heavily in IT to improve their customers’ last-mile experience. Yet unsupported middle- and back-office operations still lead to lackluster customer satisfaction. As they look for client base and regulation expertise, as well as top-notch IT solutions, banks will therefore need to collaborate with fintech firms offering their expertise in these areas.

Another area where demand from traditional players is set to increase is cybersecurity. This need is exacerbated by the growing number of cyberattacks. For instance, some 907,000 spam messages, 737 incidents related to malware and 48,000 malicious domains – all related to Covid-19 – were detected in the first four months of 2020, according to a recent Interpol report.3 

Three year-track record

Over its first three years of existence, the Robeco FinTech strategy benefited from the trends unfolding in the industry, as our Global FinTech Equities fund generated an average 17,3% annual return in euros and gross of fees, versus 8.9% for the reference index (the MSCI All Country World Index, net return).4  In the meantime, assets under management in the strategy grew steadily to EUR 1.2 billion at the end of November 2020, from institutional, wholesale and retail clients.

As we enter its fourth year of existence, the strategy remains well positioned to harvest opportunities offered by the sector. Our approach stands out from generic products in that it takes a very broad view on the fintech industry and focuses on oft-underestimated structural growth trends. Benchmarks or market timing are not our starting point. We strive to filter winners in tomorrow’s financials ecosystem, diversify through software enablers and identify challengers.

1Bank of America U.S. Department of Commerce, ShawSpring Research, 2020.
2The information provided in this article does not constitute a buy, sell or hold recommendation for any particular security. The information shown is only available for illustrative purposes only. No representation is made that these examples are past or current recommendations, that they should be bought or sold, nor whether they were successful or not.
3Interpol, 4 August 2020, “Interpol report shows alarming rate of cyberattacks during Covid-19”, press release.
4Robeco Global FinTech Equities D EUR, figures as at end of November 2020.

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