Fintech Favored by Both Hedge Funds and Mutual Funds

Hedge funds and mutual funds have made significant investments in fintech stocks, particularly Visa (NYSE: V) and Mastercard (NYSE: MA), according to an analysis by Goldman Sachs' Ben Snider. Both companies benefit from a competitive advantage that should produce sustained earnings growth for the long term.

The two fintech stocks are considered 'shared favorites' among hedge fund and mutual fund managers, with a large number of hedge funds holding them and mutual funds overweight in the stocks. The group has historically produced an annual return of 17%, outperforming the S&P 500 average by about two percentage points.

Billionaire Bill Ackman described Visa and Mastercard as 'capital-light toll-takers' that earn a nominal fee on each transaction without taking any material risk, making them natural beneficiaries of higher inflation. The companies' payment volume rose 10% year over year last quarter, while value-added services revenue climbed 34% for Visa and 20% for Mastercard.

The long-term potential for both companies is promising, with the ability to deliver double-digit percentage revenue growth driven by rising consumer spending and improved penetration of value-added services. Ackman projects earnings-per-share (EPS) growth of between 16% and 18% during the next three to five years.