When it comes to disruption, the financial sector saw transformative change during the height of the pandemic. While valuations have tempered, especially last year, the sector should continue to see growth as emerging technologies continue.
Social distancing measures during the pandemic helped to accelerate the disruption in the financial industry. It’s a difficult task given that the sector often adopts an “if it ain’t broke, don’t fix it” attitude, but the pandemic changed that as consumers sought digital means to pay for goods and services.
“In today’s uncertain economic environment, venture capital firms are scrutinizing deals more closely in search of companies with rock-solid business plans and paths to profitability,” a Fast Company article said, highlighting six trends that could shape the financial industry for the future. “This could result in a shift in funding for the fintech firms that have long been VC darlings—and spell opportunity for more established financial services companies.”
Working alongside the big players in the financial industry could give startups an additional boost. This is especially helpful in times where startup funding can be scarce due to elevated interest rates and inflation that’s still rampant in 2023.
“Indeed, after years of fintechs acting like disruptors, 2023 may be a time when these emerging tech companies start partnering with the establishment,” the article added.
Play Financial Sector Potential in Small-Caps
To capture continued growth in the space, small-cap stocks offer investors an opportunity to catch the trends early. As opposed to selecting individual stocks, an easier way could be the Invesco S&P SmallCap Financials Portfolio (PSCF).
The fund is based on the S&P SmallCap 600® Capped Financials & Real Estate Index. PSCF will normally invest at least 90% of its total assets in the securities, which may include real estate investment trusts (REITs), of small-capitalization U.S. financial service companies that comprise the index.
The index, in particular, is designed to measure the overall performance of common stocks of U.S. financial services companies. These companies are principally engaged in the business of providing services and products, including banking, investment services, insurance, and real estate finance services.
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