Two of the largest mergers in mobile payments history were announced in the first quarter. In January, Fiserv announced that it had reached an agreement to acquire First Data in an all-stock deal with a value of approximately $22 billion. In March, Fidelity National Information Services agreed to buy Worldpay for about $35 billion in a mixed stock and cash deal. All four companies are Prime Mobile Payments Index components.
In addition to significant M&A activity in the mobile payments space, there is an evolution that is taking place whereby traditional banking, even ATM services, are giving way to mobile technology. This is echoed in a recent article from Market Watch, Consumer Mobile Payments Market Share, Supply, Analysis and Forecast to 2025:
“E-commerce is well and truly here to stay and has revolutionized the retail industry. E-commerce has essentially transformed the world into one big global village, allowing companies to reach customers in far-flung areas. The developing world in particular is predicted to be ‘mobile-first’ or even ‘mobile-only’, and smartphone sales have already eclipsed that of traditional PCs. The comfort and convenience provided by mobile e-commerce is unparalleled and it aims to cater to the demand for niche products as well as traditional ones. Any company that chooses to ignore the mobile e-commerce movement does so at its own peril.”
The ETFMG Prime Mobile Payments ETF (IPAY) returned 22.5% for the quarter ended March 31, 2019, which was in line with its benchmark index. IPAY’s performance was not only a reflection of the rally in the Technology sector, but of the overall mobile payments theme, which benefitted from the success of the Financial sector as well. On that note, technology stocks in IPAY enjoyed significant outperformance relative to the overall global tech sector, which was up more than 18% in Q1.
IPAY was firing on nearly all cylinders during the first quarter, with significant contributions from Worldpay Inc. (WP, +48.5%). First Data Corp (FDC, +55.4%) and Adyen NV (ADYEN NA, +44.3%). The few companies that detracted from performance in Q1 included Wirecard (WDI GR, -17.4%), Green Dot Corp (GDOT, -23.7%) and Dai-Ichi Life Holdings (8750 JT, -7.2%).
Looking at fundamental factor performance, factors contributing positively were the portfolio’s exposure to the global markets, as well as to Consumer Finance and US equities. Exposures to style factors Momentum and Size were the largest detractors from performance.
Drilling down to look at the impact of style factors in Q1, IPAY was helped last quarter by its exposures to Growth and Trade Activity, which was a reflection on investors’ renewed appetite for risk. The portfolio was negatively affected, as we saw above, by the Size factor, as well as Momentum and Dividend Yield.
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in the Fund’s prospectus, which may be obtained by calling 1-844-ETF-MGRS (1-844-383-6477), or by visiting www.etfmg.com/IPAY. Read the prospectus carefully before investing.
Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Narrowly focused investments typically exhibit higher volatility. Mobile Payment Companies face intense competition, both domestically and internationally, and are subject to increasing regulatory constraints, particularly with respect to fees, competition and anti-trust matters, cybersecurity and privacy. Mobile Payment Companies may be highly dependent on their ability to enter into agreements with merchants and other third parties to utilize a particular payment method, system, software or service, and such agreements may be subject to increased regulatory scrutiny. Additionally, certain Mobile Payment Companies have recently faced increased costs related to class-action litigation challenging such agreements. Such factors may adversely affect the profitability and value of such companies. The Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund. Investments in smaller companies tend to have limited liquidity and greater price volatility than large-capitalization companies. The Fund’s return may not match or achieve a high degree of correlation with the return of the Prime Mobile Payments Index. To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the Index. Diversification does not guarantee a profit, nor does it protect against a loss in a declining market.
The Prime Mobile Payments Index (PMOBILE) is designed to provide a benchmark for investors interested in tracking the mobile and electronic payments industry. The stocks are screened for liquidity and weighted according to a modified linear-based capitalization-weighted methodology. The Index generally is comprised of 25–40 securities. An investment cannot be made directly in an index.
ETF Managers Group LLC is the investment adviser to the Fund.
The Fund is distributed by ETFMG Financial LLC. ETF Managers Group LLC and ETFMG Financial LLC are wholly owned subsidiaries of Exchange Traded Managers Group LLC (collectively, “ETFMG”). ETFMG Financial LLC is not affiliated with Prime Indexes.