Investors weighing up the merits of listed fintech investments need to pay closer attention to companies’ underlying profitability and not get carried away by wild surges in stock price, according to Patrick Lemmens, a fintech specialist at Dutch asset manager Robeco.
“Concept stocks – companies with limited earnings but great potential – can do very well for a while,” Lemmens told sister publication Fund Selector Asia.
“[In fintech] you often see young companies with exciting technology and enthusiastic investors. But if a company does not transition from being unprofitable into making a lot of money, people lose interest and the stock gets sold off.”
Avoiding ‘concept stock’ risk
Lemmens co-manages the Luxembourg-domiciled Robeco Global FinTech Equities fund. The fund focuses on companies that it expects to benefit from the digitisation of the financial sector. It monitors a universe of 200 companies that derive at least 25% of their revenues from fintech.
The fund seeks to avoid risky ‘concept stocks’ by only investing in companies that are already profitable or – in Lemmens’ assessment – will be profitable within the next 12 months.
“Some companies are not profitable because they re-invest so much of their revenue [to further develop their technology and operations]. But they should have a clear plan and a clear set of expectations as to when they will be profitable.
“We need to believe in that plan but if during the year it looks like it’s not going to happen we may need to sell the stock.”
Unlisted insight
Although the fund only invests in listed companies, Lemmens and his team also meets with unlisted fintech companies to stay abreast of new developments in the sector. “Unlisted companies can be a bit more open on the kind of strategies and new technologies they are working on. Listed companies tend to be a bit more cautious,” he said.
Most listed fintech stocks are found in the US, which is where the fund has an overweight. About 70% of its assets are in US equities, followed by 19% in Europe and 11% in Asia.
“We have a large US and technology sector exposure, so if something bad happens to the US, or if technology gets sold off, that will not help us,” he said, adding that the firm is not doing anything to mitigate the risk of a US or technology sell-off.
“We have been actively looking at adding more investments in Asia because we believe the best long-term opportunities are in China and India. But we are still waiting for companies to be listed.”
Robeco FinTech Equities Fund vs MSCI AC World Index
Source: FE Analytics
For more insight on asset and wealth management in Asia, please click on www.fundselectorasia.com
