Are Tech/Fintech-Focused Investors Bidding Up “Tech-Forward” Bank Stocks?

On the one hand, pure technology and fintech-oriented stocks have been weak so far year-to-date… So far this year, and especially over the past month or so, it’s been interesting to note the sluggish performance of the tech sector generally and then also stocks that aren’t quite “pure tech” but are probably better characterized as “tech-affiliated”.  As it relates to our world in the financial sphere, “tech-affiliated” is more commonly referred to as fintech, which encompasses a wide range of companies that are increasingly forcing a convergence of traditional banking and technology, a dynamic that is only likely to accelerate in the coming years.

Indeed, we note that proxies for the NASDAQ (ticker QQQ) and fintech (ticker FINX) are as of this writing down ~3.5% and ~6.5% since the start of the year. This compares to an increase of ~16.0% for the XLF (the largest financials ETF).  The purpose of this article is not to speculate on the specific reasons for tech-related weakness vis-à-vis financials, as that is outside our professional purview, beyond simply noting a couple of simplistic observations:

  • The valuation disparity between financials and technology stocks relative to the broader market (which heading into this year was just about at its most extreme in over two decades).
  • The interest rate backdrop, with significantly higher interest rates since the start of the year crimping growth-oriented stocks and providing a substantial tailwind to value stocks (and banks in particular, given the steepening yield curve). 

…while bank stocks deemed to be “technology-forward” seem to be benefiting.  Interestingly, while fintech-oriented stocks were weaker year-to-date, given the direct association and correlation with the tech sector, performance of bank stocks that we consider “technology-forward” and at the forefront of the convergence between banking and technology, was notably among the strongest in the bank sector through the first few months of the year.  This observation is more anecdotal, as there is no index that we know of that tracks the aggregate performance of banks considered to be “tech-forward” (though on that note, stayed tuned for Travillian research content in the coming weeks) and, obviously, the characterization of a bank as “tech forward” is very subjective.

Several of these banks also reported to us anecdotally that one-on-one meeting requests at recent industry investor conferences have included many technology-focused investors that these banks had not previously met and that seemed to express sincere interest in their stock.  In some cases, these meeting requests have outnumbered the bank-focused investor meetings.

This would seem to suggest to us that perhaps investment flows out of “pure” technology and fintech-related stocks may be finding a home in the best of breed of “tech-forward” bank stocks.  In other words, amidst ongoing weakness in their sector of focus, these investors could simply be further stretching the definition of fintech to now include banks that are increasingly entering that realm and that allow these investors to stay within their mandate.

There are bigger-picture implications to consider here as well.  Of course, tracking investment flows out of one sector and into specific stocks in another is impossible to track and verify with any precision, especially in real time.  But it’s nevertheless an intriguing possibility in our view and one that merits monitoring, even if only anecdotally.  For bank investors, it is certainly worth noting that tech-forward bank stocks – if indeed there is something to this speculation – might seem stretched at this point from a valuation standpoint but could prove more resilient in holding and even possibly building upon recent gains.

From a bigger picture perspective though, we continue to believe that the convergence of traditional banking and technology/fintech is likely to reflect a merging of the best of breed of these two worlds, rather than an outright takeover of one over the other.  Both sides bring something meaningful to the table – technology/fintech primarily in the form of improved service, convenience, enhanced productivity, greater efficiency, and growth; traditional banking in terms of the value of the regulated banking system (safety and soundness), underwriting expertise (which isn’t always valued appropriately in boom times, but is invaluable in times of stress), and a stable source of sticky, low-cost funding.

Joe Fenech is the Managing Principal of SMBT Consulting, LLC, which provides consulting services to banks. The article represents the views and beliefs of Mr. Fenech and does not purport to be complete. The information in this article is provided to you as of the dates indicated and the data and facts presented herein may change. You should not rely on this article as the basis upon which to make an investment decision; this article is not intended to provide, and should not be relied upon for, tax, legal, accounting or investment advice. Mr. Fenech is also the Chief Investment Officer and Managing Member of GenOpp Capital Management LLC, an investment adviser that maintains exempt reporting status in the State of Indiana. Affiliates of SMBT Consulting, LLC may recommend to such affiliates’ clients the purchase or sale of securities of companies discussed in articles published by SMBT Consulting, LLC.

The Travillian Group’s Banks and Credit Unions practice provides Search and Talent Advisory (TTG|Align) services to depository institutions across the country. Established in 1998, the firm has built a unique platform that touches every corner of the industry.

Our search and advisory professionals focus on building long-term, trust-based relationships with Boards, Executives and HR professionals. They assist our clients in the hiring of high quality, hard to find talent and provide full-life cycle consulting in such areas as succession management, leadership development, employee engagement, recruitment strategies and compensation.


Contacts​:
​Brian Love, Head of Bank Search
(484) 680-6950 
Email Biography
​Steve Cohn, Co-Head of TTG|Align
(917) 330-5850 | Email | Biography
Keith Daly, Search Consultant 
(610) 908-5968 | Email | Biography
Phylicia Seymour, Search Consultant 
(717) 615-0353 | Email | Biography

Related Posts

Bankers And Investors Are at Odds, But Can They Both Be Right? 

We’ve noticed a recurring theme in meetings between bank stock investors and bank management teams over the past several months.  In recent months, commentary from regional and community bank management…

Read more

Back to Memphis: How BaaS Friendly-Evolve Bank Continues to Strengthen Its Fintech Footprint  

Chuck Berry said it best when he sang about going back to the birthplace of rock ‘n’ roll. In the short few months since Travillian last spoke with Memphis, Tenn.-based…

Read more

Is Your Bank’s Risk & Compliance Talent Focusing on the Right Things: A Conversation with Coastal Financial Corporation’s Curt Queyrouze & Andrew Stines

Risk and Compliance has always been a critical function for community banks, especially so today when tech-forward banks are involved in complicated BaaS and embedded finance partnerships with fintechs and…

Read more

Travillian Ridin’ With The Fintech Cowboys

Tune into our latest video where The Fintech Cowboys, Dave Mayo and Tanner Mayo, are lassoed into a compelling discussion with Travillian’s Keith Daly and Brian Love.  They discussed:   The…

Read more

Tangible Book Value Hits Are an Underappreciated Headwind to Bank Stock Performance, but Are We Approaching an Inflection Point?

Trends in tangible book value growth over time are a staple of bank stock valuation analysis “…we believe tangible book value per share is a good measure of the value…

Read more

Travillian Next Presents: How Being a Tech-Forward Bank Impacts Your Bottom Line Webinar

Community banking’s push into technology was already happening before the pandemic, but it has become an even bigger priority ever since. Nevertheless, pivoting to a tech-forward business model is not…

Read more