AltFi Fintech Index sees third consecutive negative month, falls 3.2%

April is the cruellest month, according to T.S. Eliot's The Waste Land poem, and despite global equities markets rising in the month, the banking sector’s woes continued to worsen in the month.

The AltFi Fintech Index, which tracks c.50 listed companies at the centre of financial innovation, saw a 3.2 per cent fall in April. This is its third consecutive monthly fall followng on from a 20.1 per cent leap in January.

As with recent months, the index relatively muted movement overall masked huge swings for some of its constituents.

Out of 47 constituents in the index, 34 lost money in April.

In total, 15 companies in the AltFi Index fell by more than 10 per cent. 

The worst hit were BlendLabs (-38.2 per cent), MoneyLion (-34.5 per cent) and Coinbase (-25.8 per cent).

Just over a quarter of the index’s 47 constituents (13 or 27 per cent) made a positive return in April. Three of these companies - Adyen, Enova and Payoneer - saw a return below 1 per cent.

However, three companies saw outsized returns. 

Stoneco, a cloud payments company backed by Warren Buffet’s Berkshire Hathaway,  popped 30.4 per cent.

Northern Data, a German provider of data centres to the crypto and blockchain industry as well as other high-growth sectors such as artificial intelligence, saw a huge 43 per cent return.

This made it the second best performing stock in the index following from being the top performer last month.

The top performer with a 47.4 per cent return was Sunlight Financial, a provider of loans for homeowners wanting to install solar panels.

Nubank was another solid performer in April after it unveiled impressive results for the first quarter which included.

Macro movements

The fall in the AltFi Fintech Index comes in contrast to a rise in global markets

with a 1.8 per cent uptick for the MSCI World Index. 

Investor optimism started to gather, according to analysts at Schroders, as anticipation that the Federal Reserve was moderating its monetary policy, although somewhat tempered “by the central bank flagging that economic growth is likely to soften”. 

Invesco ETF’s April European Demand found said “April was a quiet month for markets in terms of performance, with all major asset classes posting modest gains.”

Uncertainty in the banking sector started to become further entrenched, however, particularly for smaller US banks. Larger US banks in the S&P 500 index generally made progress upward in the month of  April.  

“The collapse of First Republic looked unavoidable by the end of April, and its demise represented the largest casualty yet triggered by 2023’s simmering banking sector stress,” Schroders said. 

The bank was ultimately acquired in a deal between the US government and JPMorgan. 

Schroders analyst team note that the US regional banking crisis is raising questions “about how the digital asset industry should interact with the traditional banking system”  given that all three banks that have been shut down in 2023 were involved in the industry in varying degrees. 

“US regulators continued to focus on the industry and ultimately this is likely to lead to more clarity on the regulatory front.”

Despite this, digital asset markets are the brightest spot for investors in 2023, a part likely driver of Northern Data’s gains in April. Bitfarms, a crypto miner also in the index, clocked up a decent return in April too, rising 16.9 per cent as Bitcoin and Ethereum returned 2.9 per cent and 3.5 per cent, respectively, in April. 

“Digital assets are one of the best performing asset classes in 2023 as Bitcoin is up 71 per cent year-to-date. Bitcoin’s outperformance was idiosyncratic as liquidity shifted in the face of bank insolvencies,” said Schroders.s

“The next milestone for the Ethereum upgrade was successfully completed this month allowing locked tokens to be removed for the first time in years. The extra liquidity didn’t have a negative price impact,” Schroders added.