The AltFi Fintech Index returns 43.4% in 2023 after June jump

It might be the AI hype train or better-than-expected performance in the global economy, but risk looks to be back on the investor menu. Listed fintech companies are notable beneficiaries.

June was the second-best month for the AltFi Fintech Index in 2023 so far with a 10 per cent rise. 

The jump in June, beaten only by January’s 20.1 per cent return, locks in a 43.4 per cent for the year so far.

This makes the index one of the strongest-performing indices, mutual funds or ETFs in 2023.

Of the c.60 or so listed fintech companies that make up the AltFi Fintech Index, all ‘pure play fintech companies and mostly those that became public companies in the last five years, most made a positive return in June.

In total, 76 per cent of those in the index made a positive return in June, the second consecutive positive month for the index. Nearly half of all stocks made a double-digit return and five made a return of over 40 per cent.

Katapult, an e-commerce-focused fintech founded by Chinedu Eleanya, Andrew Hancox, and Brandon Wright in 2012, was the month’s best performer. 

It made a 71.4 per cent return in June, bouncing back after a difficult year where it saw its share price plunge ahead of its fourth quarter 2022 financial results.

San Francisco-based digital residential real estate platform Opendoor had another big month with a 63.4 per cent return.

Hut 8 Mining, a Canadian bitcoin miner, was up 59.7 per cent while SoFi jumped 38.3 per cent.

For the largest constituents of the index, which has weightings based on market capitalisation and liquidity, it was largely a strong month of performance. 

Four out of the five largest constituents all made decent returns in June. Paypal (up 7.5 per cent), Shopify (up 11 per cent), Adyen ( up 6.2 per cent) and Nubank ( up 16.9 per cent). Only MercadoLibre was down (7.4 per cent).

The stock market vs real economy

Most economists have predicted eventual recessions in 2023, with some even pointing to an apparent financial cataclysm being just around the corner, but markets are performing well in 2023. 

Despite the rising interest rate environment amid inflation concerns and the war in Ukraine, markets have generally risen higher with a 'risk on' sentiment returning.

The Nasdaq, for example, made a 38.8 per cent return in the first half of the year and the S&P 500 is up 15.9 per cent.

Analysts at 7 Investment Management point to “highly mixed” economic data combined with a huge amount of excitement around AI and tech this year boosting equity markets. 

“[This] has resulted in strong index-level performance driven by a small number of stocks. In May, it was NVIDIA, in June it was Apple. This has resulted in the tech-heavy Nasdaq having its best H1 in 40 years, not something you would necessarily have expected in a rising-rate environment where a recession is being forecasted, 7IM said.

While rates have risen in major markets, US inflation appears to be if not tamed, moving in a good direction. It has fallen, 7 Investment Management notes, from 9 per cent to 4 per cent this year with the labour market outperforming expectations too.

“If you had forecast this at the start of the year, you’d have been accused of being too optimistic. Usually, the rate rises that are needed to bring inflation down this quickly would bring about a lot of unemployment and break some other parts of the economy along the way. Yes, the banking sector had a wobble, but what has happened so far has still been pretty moderate.”

With fewer macro fears than at the start of the year, investors are happy to look again at ‘longer dated’ risk assets such as growth stocks. But it has been the AI hype that has driven much of the return to sentiment.

“AI will no doubt have a big impact on all of our lives and 2023 has been the year that the world has got really excited about it. ChatGPT and similar releases, such as Google’s Bard, have made people think much more seriously about how AI might impact our lives and productivity,” 7IM’s analysts said

While the AltFi Fintech Index doesn't hold any pure play or heavily exposed AI stocks, some of its constituents have been focal on their investments in AI. 

For example, Nubank’s CEO said in May that AI was a “great priority” for the now-profitable company

"Five years from now you'll be talking to Nubank in your self-driving car, you'll be talking to Nubank in your home," Velez told reporters.

"And we hope the conversation will go beyond financial services to also bring in lots of information and data to help you make the best decisions."