Investment managers seemed to favor one particular equity market sector last quarter as artificial intelligence (AI) stocks wavered. Hedge funds increased their tilt toward financial stocks by 300 basis points, according to an analysis by Goldman Sachs‘ Ben Snider. He also noted that mutual funds increased their exposure to levels last reached in 2012 relative to their benchmark indexes.
Two <a href="https://www.fool.com/investing/stock-market/market-sectors/financials/fintech-stocks/?utm_source=yahoo-host-full&utm_medium=feed&utm_campaign=article&referring_guid=cb19f130-f1dd-4f0e-b81d-d31106c4c836″ rel=”nofollow noopener” target=”_blank”>fintech stocks have found favor with both hedge funds and mutual funds, which tend to have different investment time horizons. That means both near-term catalysts and long-term trends could push the stocks higher from here, even though they’ve already seen their prices climb considerably since the end of March.
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The two fintech stocks smart money is buying
Snider identified Visa (NYSE: V) and Mastercard (NYSE: MA) as “shared favorites” among hedge fund and mutual fund managers. That means a large number of hedge funds hold the stocks and mutual funds, as a group, are overweight in the stocks. It’s a list Goldman Sachs has maintained since 2013, and the group has historically produced an annual return of 17%, about two percentage points more than the S&P 500 average during that period.
Of course, investors should always heed the usual caveat: Past performance is not an indication of future results. But Visa and Mastercard are wonderful businesses that benefit from a significant competitive advantage and can generate earning growth at a sustainably high rate for a long time. Hedge funds and mutual fund managers who bought the stocks last quarter certainly got a fantastic price for the stocks. Despite both trading at a premium today, they’re worth paying up for right now.
Billionaire Bill Ackman described the pair as “capital-light ‘toll-takers’ that earn a nominal fee on each transaction without taking any material risk and are natural beneficiaries of higher inflation.” On top of that, digital payments are growing faster than consumer spending, as card payments still account for just half of all spending globally. Considering the global reach of the payments networks, there’s a long runway for continued market penetration and growth. Ackman was among the fund managers who established positions in Visa and Mastercard last quarter.
