Outperforming the S&P 500: Meet the AltFi Fintech Index

Fintech has by far been the most popular place for venture capital investment over the past decade, hitting a 2021 peak of $120bn in annual fundraising. 

Now, despite a slowdown in Initial Public Offerings (IPOs) in the past two years, there are more publicly listed fintech companies than ever before.

Meet the AltFi Fintech Index, an institutional-grade basket of c.60 publicly traded fintech companies offering the most definitive industry benchmark available.

In 2023, the index has returned 14.3 per cent, putting it ahead of the S&P 500 (12.25 per cent), MSCI World Index (10.7 per cent) and the FTSE All Share (5.9 per cent) indices over the same time period.

Throughout 2023 the index has been up as high as 47.86 per cent at the end of July when market sentiment soared on the back of an increasingly positive volley of macroeconomic data. 

At this point, the ‘pure play’ nature of the index was in full evidence with a near 30 percentage point gulf between the AltFi Fintech Index and the S&P 500, which was up 19.99 per cent over the same period. 

The MSCI Fintech Innovation index over the same period (to July 31) was up 28.66 per cent.

How does it work?

The AltFi Fintech Index, launched through a partnership with challenger European index provider BITA, is a rules-based index established through a mixture of quantitative and qualitative metrics. It is denominated in US dollars and is rebalanced on a quarterly basis.

Every constituent is selected from a wider universe of fintech companies' stocks that are given a revenue-based thematic exposure score. 

This is determined through an in-depth analysis of a company’s business lines via the collection of publicly available data provided by the company in regulatory filings. 

These include annual reports and other stock market filings, quarterly earnings reports, investor presentations, official earnings conference call transcripts, as well as credible news sources. 

Ultimately, a total thematic exposure score is calculated based on the sum of a company's revenue derived from fintech as a proportion of a company’s total revenue.

Constituents are then weighted using a modified free-float market capitalisation weighting algorithm. Index values are disseminated on an intraday and end-of-day basis.

The index currently has c.60 stocks that have made it through the multiple filters, with an expectation that this figure will rise in the coming years as dozens more fintech companies move into public markets through IPOs or direct listings.  

On 29 September 2023, the ten largest index holdings are outlined in the table below. 

Why now?

In recent history 2021 stood out as an extraordinary year when it comes to fintech. 

Just over $420bn of VC funding went into fintech in the five-year period that proceeded this, according to Dealroom.

The closing of 2021 also marked the closing - or at least a pause - in the trend of ever-increasing volumes of venture capital invested into fintech, soaring valuations, and a flurry of stock market listings for the likes of SoFi, Coinbase and Nubank.

While more than $1.1trn of exit value has been created since 2016 (including IPOs, direct listings, acquisitions and private sales), about two-thirds of fintech startups are still private with a total market value worth over $3trn.

The fintech sector is at a pivotal moment of change. Valuations are bouncing back in both public and private markets but only partly owing to an improving macroeconomic picture. Much more interesting is the stellar performance of a number of publicly listed fintech companies such as Nubank demonstrating the explosive power of financial innovation.

Over the next few years not every fintech company will go public, but dozens, perhaps more will do, joining - most likely - the AltFi Fintech Index.