Financial technology, or fintech, stocks have been all over the place in the past few years. In the pandemic bull market, they led the way with huge returns, but they crashed harder than most in last year's bear market. This year, it's a mixed bag as some have shot back up from their lows, while others are still struggling in a high-inflation, high-interest-rate environment. 

Are those that are still depressed now good buys, or has something changed that affects their future growth prospects? And are those that are soaring higher now overpriced, or is there still room to run? You could probe these questions further in hopes of finding the winners, or you could tap into this dynamic area of the market through a fintech-focused exchange-traded fund (ETF) -- like the Ark Fintech Innovation ETF (ARKF 1.97%). 

Managed by Cathie Wood

There are only a handful of ETFs on the market that are purely focused on fintechs. That's not unusual, as this is a relatively new subsector of the market, even though financial technology companies like Fiserv have been around for decades.

The Ark Fintech Innovation ETF, which debuted on Feb. 4, 2019, is one of the best in this small class. Most notably, it is actively managed by famed investor Cathie Wood, the founder and CEO of Ark Invest. 

Wood and her team invest at least 80% of the fund's assets in domestic and foreign equity securities of companies that are engaged in fintech innovation. That is, they have a new product or service that potentially changes the way the financial sector works. It also means they derive a significant portion of their revenue from this innovation. The innovation may relate to payments and transactions, digital wallets, blockchain technology, risk transformation, funding platforms, peer-to-peer lending, customer-facing platforms, or new intermediaries.

Currently, it holds 32 stocks with Coinbase Global, Shopify, Block, DraftKings, and Robinhood as the top five holdings. About 72% of the portfolio is in large- and mega-cap names, while about 28% is in mid-caps.

The ETF has been on fire this year. It's up 61% year to date, which outpaces both the S&P 500 and Nasdaq 100 by a significant margin. Over the past year, as of July 24, it is up about 22%, which is roughly on par with the Nasdaq 100 and ahead of the S&P 500. However, the fund got hit hard in 2022, down roughly 65%, so it has a three-year annualized return of negative 13% as of July 24.

Add some alpha

The last three years have been extremely volatile, particularly for the tech sector, which went from a bubble to the worst crash in more than a decade. But as market conditions improve, new companies mature and become profitable, and innovative start-ups emerge in this dynamic and fast-growing subsector, this fund should be able to generate a lot of alpha for your portfolio. The fact that it is managed by Wood is another plus, as she has had success finding winners in other high-growth areas of the market. 

Because of this ETF's focus on fintechs, there is not a lot of overlap with other growth or even tech-heavy investments, so it might fit well alongside a broader growth-oriented ETF in your portfolio. But keep in mind, it is volatile and comes with an above-average expense ratio of 0.75%, meaning it should only be a small part of a larger portfolio, balanced out by more stable investments that offset its swings.

But overall, this fund is an excellent vehicle to tap into the rapidly growing and evolving part of the market without having to risk trying -- and perhaps failing -- to pick the winners yourself.