The finance world is at the cusp of disruption. Saving money, investing for retirement, financing a business, or insuring a house all required the support and resources of one of a handful of major banks. Now, with better technology and savvy entrepreneurs, the financial services sector is being turned upside down.
Big data combined with artificial intelligence can now help inform underwriting decisions for insurance companies, so that your premiums are lower. Online listing and borrowing platforms are helping people crowdfund new businesses or purchase their dream home. Machine learning algorithms can help people balance their portfolio and harvest tax losses on their investments automatically.
These sweeping changes will benefit consumers, but erode the lucrative margins and high volumes major banks are accustomed to. Instead, scrappy startups with technical entrepreneurs will be the big winners. However, investing in these startups is usually restricted to qualified investors and venture capital firms, which means that the average investor tends to miss out.
Fortunately, Canadian retail investors have an opportunity to benefit from this seismic shift. Montreal-based holding company Power Financial Corp. (TSX:PWF) is a multi-billion dollar juggernaut that manages an extensive portfolio of stocks in financial companies.
Although Power Financial’s largest holdings are traditional insurance and asset management companies, the company has gradually shifted more of its assets to cutting-edge tech startups who are redefining the sector.
Here’s a closer look at the portfolio:
Traditional finance
Power’s portfolio is primarily based on two large holdings in global financial giants. It includes a 67.8% equity stake in insurance giant Great-West Lifeco and 61.4% stake in asset manager IGM Financial. Together, these stakes are worth $24.6 billion, representing a majority of the portfolio.
Along with a stake in Swiss financial conglomerate Pargesa Holding, Power Financial has a robust base of assets that fuel its recurring income and allow management to offer a sizable 6% dividend yield on the stock.
However, the company is keenly aware of the technological threats to its core business and has been investing heavily in FinTech disruptors in recent years.
FinTech start-ups
Wealthsimple, a Canadian online investment management service focused on millennials, is the flagship asset in Power’s financial technology (FinTech) start-up investment portfolio. The platform uses a combination of artificial intelligence (also known as robo-advisory ) and access to live advisers to help Canadian savers invest their money at low costs.
As of May, 2019, the platform had $4.3 billion in assets under management. Power indirectly owns 82% of the company through its various subsidiaries.
Besides Wealthsimple, Power has also invested in digital wealth management tool provider Personal Finance, loyalty rewards platform Drop, and cryptocurrency investment fund manager Multicoin Capital, among several others.
In other words, Power is well prepared for an eventual disruption of the financial sector.
The company also has a long track record of investment performance that should inspire investors to take a closer look. Power’s dividend payments are up 23.5% over the past five years, while the return on equity is still a sizeable 12.5% per year.
Bottom line
Power Financial manages to balance steady income with long-term growth. While its handsome dividend yield is powered by sizeable stakes in major financial service providers across North America and Europe, its recent investments in FinTech start-ups makes it resistant to the swift disruption of the global financial system.
For investors seeking a secure source of passive income, this one’s a winner.
