Fintech Stocks Did Worse Than Fin or Tech in 2022

The

Global X Fintech

ETF fell 52% in 2022. That is well worse than the 12% decline in the

Financial Select Sector SPDR Fund,

which tracks the financial sector of the S&P 500, and the 33% drop in the Nasdaq Composite Index.

Other fintech-focused funds and indexes performed even more poorly. Fund manager

Cathie Wood

‘s

ARK Fintech Innovation

ETF, whose top holdings include

Shopify Inc.,

Block Inc.

and

Coinbase Global Inc.,

fell 65% in 2022. The F-Prime Fintech Index, which aims to “track the performance of disruptive fintech companies,” is down 71% through late December. Six of the 60 companies in the index—

Affirm Holdings Inc.

;

Dave Inc.

;

Doma Holdings Inc.

;

Opendoor Technologies Inc.

;

Root Inc.

and

Upstart Holdings Inc.

—fell more than 90% in 2022.

All manner of high-growth tech stocks sold off in 2022 after the Federal Reserve began hiking interest rates to fight inflation. Higher rates give investors more options for where to put their money for steady returns, making them less willing to take a risk on tech stocks that promise growth.

But higher rates posed an additional challenge for balance-sheet heavy fintech firms. Lenders Affirm and Upstart rely on banks and money managers to fund the loans they make to borrowers. Nontraditional consumer lenders are now paying more to borrow money, which is squeezing their margins and even putting some smaller players out of business.

Many fintech companies also mistook the cyclical boosts they enjoyed during the pandemic for permanent shifts.

PayPal Holdings Inc.

and

Shopify

wrongly bet that the elevated online-shopping volumes they enjoyed in 2020 and 2021 would endure, forcing them to slash expenses when in-store shopping made a comeback the following year.

Robinhood Markets Inc.

hired more than a thousand extra employees in 2021 to keep up with trading volumes that it expected to remain high, only to have to lay off many of them when investor interest waned.

Many of the once-highflying fintech upstarts also are losing money, which no longer sits well with investors.

“Investors are increasingly wary of high-growth but unprofitable business models, and over the last several quarters high-growth firms across our coverage have been increasingly giving priority to profitability improvement in their actions and commentary,” wrote Eugene Simuni, an analyst at MoffettNathanson who covers fintech, in a research note in December.

Mr. Simuni said that only one high-growth fintech company he follows has been consistently profitable,

Shift4 Payments Inc.

The company, which processes payments for businesses and merchants, fell just 3% in 2022.

Write to Peter Rudegeair at [email protected]