Hi all, Julie here.
So I have a few fintech stocks in my portfolio, and recently, their performance hasn’t been so hot. That’s a bit of a change considering stocks like Affirm, SoFi and others had an incredible second half of 2021. On the other hand, financial companies have continued to do well to begin the year. Take a look at this tweet/stat from John Street Capital:
A group of ~30 incumbents like Bank of America, Goldman and Schwab have outperformed a group of 30 fintech companies by an average of 40%+ over the trailing 3-6 months.
No wonder my Public.com portfolio is looking a little rough for a YTD return lol. But I’m not here to whine about my returns, I’m here to talk about why all of this is happening. There are a few things at play:
The biggest dynamic recently has been the rotation out of tech (high growth, negative earnings), which is impacting fintech. This money is then going into sectors that are more stable and benefit from higher rates, which include financials.
No, it's not a Fed stablecoin that’s causing fintech to tumble, it’s the fact that markets went from pricing in no rate hikes this year to as many as four. That’s a huge shift! Since most fintech companies aren’t banks, they don’t benefit from higher rates. Not to mention, tighter financial conditions typically hurt high growth companies.
For now at least, fintech is more impacted by crypto than incumbents. Bitcoin and other cryptos have had a terrible start to the year and certainly aren’t helping fintech stocks. The regulatory uncertainty that crypto continues to face will be a bit of an overhang at times as well, and adds risk to these positions.
I’d be remiss to say that perhaps we all just got a bit ahead of ourselves the past couple of years. The crazy thing is that I still don’t see any of this having an impact on the private markets yet. If anything, it feels like private fintech, crypto, DeFi companies and the like are having a great start to the year. The pullback in public markets would have to last much longer than a few weeks, perhaps even into the second or third quarters of this year, to have a material impact on the private markets IMO.
All of this being said, I’m still a massive bull in this space. Largely because of the talent I see in our sector. It’s not going to be a straight line up, but I think we’re far from the peak (though we might not be at the bottom yet either).