4 Stocks to Play the Way Technology Is Changing Everything About Finance – Barron’s

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Fintechthe nexus of finance and technologyis undeniably a huge investment opportunity. But a major factor in whether investors are successful is how they define fintech.

After all, theres a big difference in between a fintech investment strategy that bought shares of credit card and digital payments companies Mastercard (ticker: MA), PayPal (PYPL), Square (SQ) and Visa (V), and one that invested in pure-play fintech lenders Elevate Credit (ELVT), LendingClub (LC), and On Deck Capital (ONDK). With the former portfolio, youd be hard-pressed to find a way not to reap triple digit-returns over the past few years. With the latter, itd take extraordinary market timing just to stay out of the red.

But fintech isnt a type of company or even a subset of finance, KBWs Hari Sivakumaran wrote in a note to clients on Monday. Instead, it refers to a companys state of technological innovation and can be measured quantitatively and qualitatively as business models adapt to technologically-based products, services, and operational infrastructure, he wrote.

He used that definition to look at more than 650 financial stocks in Europe and the U.S. and highlighted stocks of companies that are well-positioned to take advantage of key industry and consumer trends.

In the U.S., Sivakumaran highlights real estate as one of the industries on the cusp of a digital sea change. Venture capital investments in real estate technology through the first nine months of 2019 hit $13.8 billion, up from $7.9 billion over the same period last year.

This is forcing real estate incumbents to re-examine their digital strategies and recognize that technology is no longer just a back-office function used to keep the lights on, he wrote. Rather, it presents an opportunity to revolutionize antiquated processes and improve client results, potentially augmenting expected returns for real estate overall.

In the so-called proptech space, KBW has Outperform ratings on CoStar Group (CSGP), a real-estate data and analytics company, and RealPage (RP), a property management software company.

Another area highlighted by Sivakumaran is the continued digitization of fixed-income trading. To give a sense of just how big an opportunity this is, he pointed out that just about a quarter of the total notional volume in the high-grade corporate bond market was executed electronically last year. In the high-yield bond market, that number was just 10%. He highlights MarketAxess Holdings (MKTX) and Tradeweb Markets (TW) as two companies will benefit from the push toward e-trading in the bond market.

Write to Ben Walsh at ben.walsh@barrons.com

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4 Stocks to Play the Way Technology Is Changing Everything About Finance - Barron's