Tech Investors Rotating Into Payments Stocks?

For tech investors, is a rotation a-brewing?

When it comes to investing, a rotation occurs when investors take their money out of one sector and put it into another — and the goal, as always, is to see better returns that come with the broader market.

Reuters reports that at least some U.S. fund managers have been bringing firepower to bear in the payments sector, which may have been “one stodgy” but now is getting greater scrutiny as those same managers rotate away from names such as Alphabet and Facebook (belonging to the famed FANG cohort).

The money is  flowing into companies that have a stake in eCommerce, said the newswire, including companies such as Mastercard, Visa and PayPal. The lure seems to be that growth at a reasonable price (sometimes known as GARP) and valuation may have better returns than might be seen elsewhere. In addition, some of the names in the payments sector have show a bit of relative resilience even in downturns. Consider the fact that, Visa, for example, is off a bit less than 3 percent through the past three months as measured earlier in the week, compared to the 30 percent slide seen in Facebook.

Among the firms making the rotations, said the newswire, are funds from Villere & Co, Ave Maria Mutual Funds and others. The attraction of the payments-centered investments comes, also, as those eCommerce companies also have presence in mobile computing.

In reference to valuations, in one example, Visa sports a price-to-earnings multiple of 38x, while Amazon has a less palatable 160x.

In an interview with the newswire, Lamar Villere, a portfolio manager at Villere & Co., with positions in Visa and Euronet Worldwide, said that “you’re getting a lot of the same disruption  but at a fraction of the price.”

Beyond individual positioning, exchange-traded funds with concentration within the payments sector have also seen inflows of investor cash. The ETFMG Prime Mobile Payments ETF, which is an exchange-traded fund, has had positive fund flows reaching back into September, per data from Lipper. Conversely, FANG-focused ETF has seen outflows in four of the past six weeks.



The pressure on banks to modernize their payments capabilities to support initiatives such as ISO 20022 and instant/real time payments has been exacerbated by the emergence of COVID-19 and the compelling need to quickly scale operations due to the rapid growth of contactless payments, and subsequent increase in digitization. Given this new normal, the need for agility and optimization across the payments processing value chain is imperative.