Patrick Lemmens, Robeco
“Concept stocks, which have great ideas, tend to do very well for a while. But then they get less interesting and get sold off eventually,” Lemmens told FSA in a recent interview.
One example of a concept stock was a fintech company that provided a solution for cross-border movement of payments, according to Lemmens. The company, which competed against the Swift payment network, had a more advanced system to make payments faster.
“The problem was this company wasn’t making a profit. The stock went up crazy and then it was sold off, and then there were rumours that Visa will acquire them, which is now finally happening.
“This is what you often see in young companies with exciting technology: people get enthusiastic, but if a company does not transition from being unprofitable to making a lot of money, people lose interest.”
Lemmens co-manages a fintech-focused product (only available to professional investors) that invests in listed companies that focus on financial technology.
He looks at a universe of 200 companies that at least have 25% of their revenues coming from the fintech theme.
Clear expectations
To avoid concept stocks, Lemmens only invests in companies that are profitable now or, in his assessment, can be profitable within the next 12 months.
“Sometimes what happens is that companies are not profitable today because they re-invest so much of their revenue [to further develop their technology and operations],” he said.
However, Lemmens noted that the company should have a clear plan and set clear expectations of when it will be profitable.
“We need to believe that plan, and if during the year it turns out that this is basically not going to happen, we will have to decide if we will ultimately sell the stock.”
Lemmens added that although the fund invests only in listed companies, he and his team meet with unlisted fintech companies to get a fresh angle on the sector.
“What we learn from unlisted companies is what kind of strategies are working and the new technologies they are working on. And sometimes, they will be a little bit more open.
“Listed companies tend to be a bit more cautious in commenting about their competition. But unlisted companies are often honest about who they admire, who they think is doing a good job and who is not doing a good job.”
US risk warning
Most of the listed fintech stocks are found in the US, which is where the firm has an overweight. Around 70% of the assets are in US equities, followed by 19% in Europe.
“We have a large US and technology sector exposure, so if something bad happens to the US, or if technology gets sold off, that will not help,” he said, adding that the firm is not doing anything to mitigate the risk of a US or technology sell-off.
“We have a very clear strategy and we do not want to allocate more in cash. If people put money into our fintech theme, they will get a 100% fintech strategy.”
About 11% of the portfolio is invested in Asia, according to Lemmens.
“We have been actively looking at adding more to Asia because we believe long-term the best opportunities are in China and India. But we are still waiting for companies to be listed.
“Longer term, these markets are developing more, and I could easily imagine that China and India will be the biggest part of the portfolio at some point.”
The Robeco FinTech Equities Fund vs its sector in Singapore and the MSCI AC World Index.
