white papers

FinTech positioning for a re-opening in 2021

FinTech positioning for a re-opening in 2021
Jeroen van Oerle - Portfolio Manager

Jeroen van Oerle

Portfolio Manager
Christian Vondenbusch - Portfolio Manager

Christian Vondenbusch

Portfolio Manager

The pandemic has accelerated many of the secular growth trends within FinTech and has helped to increase the digitalisation of the broader economy. This environment calls for selective stock picking and a disciplined valuation approach. 

In recent whitepapers, we have focused on these accelerating trends within FinTech. In the first whitepaper, “Tokenisation: Revolution or Evolution?” we explained how the asset management industry would be impacted by asset tokenisation, which we consider to lead to the democratisation of investments. This creates winners and losers and despite it being too early to clearly point out who the winners will be, it is possible to invest in those that enable this trend to unfold in the coming years.

2020 has been the year in which many of the companies which either have a strong digital offering or the ones that enable the digitalisation of the financial sector and broader economy have performed very well

In “China leading the move to a digital currency,” we explain how the world is rapidly moving towards a fully cashless society, urged on by governments and health organisations to avoid the use of paper money during the crisis. This structural shift has been further boosted by China leading the way with the introduction of a Central Bank Digital Currency (CBDC) with many central banks following their example as a response to the rapid decline in cash and as an answer to the rise of private market initiatives like Facebook’s1 Diem and the tremendous popularity of crypto currencies. 

In our last whitepaper, “Digitalisation in the financial sector” we elaborated on how digitalisation has transformed the thinking of financial service companies from something which is nice to have, into a must-have. We believe that the long-term strategic rationale for digital is shifting: 2020 is a year of cost cutting, 2021 is a year of re-aligning and prioritising IT projects, followed by many years of transformative digitalisation. 

As a result, 2020 has been the year in which many of the companies which either have a strong digital offering or the ones that enable the digitalisation of the financial sector and broader economy have performed very well. Consequently, valuations for the digital winners, especially the hyper revenue growth business models have become very high. 

Within our investment process we select reasonably priced profitable quality compounders with a high purity factor that benefit from long-term FinTech trends. Given the strong valuation discount to the hyper-growth companies, we expect to see a rotation into these more attractively-valued compounders. Furthermore, towards the end of last year we have added cyclical upside to the portfolio within the opportunity set of our proprietary FinTech universe. This in order to benefit from a sharp vaccine-led economic bounce back in 2021. An (even) more expansionary fiscal policy by the new US administration could trigger even more rotation. 

The most interesting cyclical areas within our universe can be found within payments, more credit exposed personal finance FinTechs, online brokers and payrolling companies. We avoid BigTech as they do not meet our purity hurdles and we stay away from unprofitable hyper-growth business models.

important information.

This document has been issued by Lombard Odier Funds (Europe) S.A. a Luxembourg based public limited company (SA), having its registered office at 291, route d’Arlon, 1150 Luxembourg, authorised and regulated by the CSSF as a Management Company within the meaning of EU Directive 2009/65/EC, as amended; and within the meaning of the EU Directive 2011/61/EU on Alternative Investment Fund Managers (AIFMD). The purpose of the Management Company is the creation, promotion, administration, management and the marketing of Luxembourg and foreign UCITS, alternative investment funds ("AIFs") and other regulated funds, collective investment vehicles or other investment vehicles, as well as the offering of portfolio management and investment advisory services.
Lombard Odier Investment Managers (“LOIM”) is a trade name.
This document is provided for information purposes only and does not constitute an offer or a recommendation to purchase or sell any security or service. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful. This material does not contain personalized recommendations or advice and is not intended to substitute any professional advice on investment in financial products. Before entering into any transaction, an investor should consider carefully the suitability of a transaction to his/her particular circumstances and, where necessary, obtain independent professional advice in respect of risks, as well as any legal, regulatory, credit, tax, and accounting consequences. This document is the property of LOIM and is addressed to its recipient exclusively for their personal use. It may not be reproduced (in whole or in part), transmitted, modified, or used for any other purpose without the prior written permission of LOIM. This material contains the opinions of LOIM, as at the date of issue.
Neither this document  nor any copy thereof may be sent, taken into, or distributed in the United States of America, any of its territories or possessions or areas subject to its jurisdiction, or to or for the benefit of a United States Person. For this purpose, the term "United States Person" shall mean any citizen, national or resident of the United States of America, partnership organized or existing in any state, territory or possession of the United States of America, a corporation organized under the laws of the United States or of any state, territory or possession thereof, or any estate or trust that is subject to United States Federal income tax regardless of the source of its income.
Source of the figures: Unless otherwise stated, figures are prepared by LOIM.
Although certain information has been obtained from public sources believed to be reliable, without independent verification, we cannot guarantee its accuracy or the completeness of all information available from public sources.
Views and opinions expressed are for informational purposes only and do not constitute a recommendation by LOIM to buy, sell or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change. They should not be construed as investment advice.
No part of this material may be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorised agent of the recipient, without Lombard Odier Funds (Europe) S.A prior consent. ©2021 Lombard Odier IM. All rights reserved