Both Hedge Funds and Mutual Funds Are Buying These Fantastic Fintech Stocks, and That's a Great Signal for Investors to Buy

Goldman Sachs says hedge funds increased their tilt toward financial stocks by 300 bps, with Visa (V) and Mastercard (MA) identified as shared favorites by both hedge funds and mutual funds. Payment volume rose 10% year over year last quarter, while value-added services revenue accelerated—Visa +34% YoY last quarter and Mastercard +20%—supporting Ackman’s “capital-light toll-takers” thesis. Street EPS growth estimates are ~13.5% annualized for Visa over the next two years and ~16% for Mastercard, with the article arguing both could sustain 16%–18% EPS growth over the next 3–5 years even at 25–30x earnings.

Analysis

The real signal here is positioning, not the news flow: allocators are rotating into the highest-quality, fee-based financial compounders as AI leadership broadens out. That should keep V and MA bid over the next 1-3 months, because they fit the current market preference for secular growers with low balance-sheet risk and visible cash conversion. The earnings setup is more important than the headline narrative: value-added services can keep EPS growing faster than transaction volume, which supports multiple durability even if card spend normalizes.

Second-order winners are the adjacent rails and data vendors that plug into network ecosystems: fraud, identity, and merchant analytics providers can see pull-through if the networks keep monetizing services. The likely losers are lower-quality fintechs that depend on payment volume growth without network control; if card penetration keeps rising, wallet and point-solution businesses face ongoing take-rate pressure and higher customer-acquisition costs. This also matters for banks: the economic value in payments is migrating toward the toll collectors, not the balance-sheet lenders.

The main risk is crowded ownership. V and MA are now consensus quality longs, so any deceleration in cross-border volumes, consumer spend, or value-added-services growth can cause a fast de-rating even if the businesses remain strong. The contrarian miss is that the market may be underestimating how much of the next 12 months is already priced in; upside from here likely requires either a macro re-acceleration or another step-up in monetization, not just steady execution.

Key Decisions for Investors

• Stay long MA and V on 3-6 month horizon, but only add on 3-5% pullbacks; reward/risk is still favorable, but the crowding premium argues against chasing strength after a sharp run.
• Use MA or V as a quality-financial hedge versus broader financial beta: long MA/V, short XLF or KRE for a 1-3 month rotation trade that isolates secular payment growth from rate-sensitive bank exposure.
• Prefer a basket long of MA + V over single-name concentration; if one wants higher operating leverage, overweight MA modestly, but keep a tighter stop because the multiple can compress quickly if growth slows.
• Avoid initiating new longs if next-quarter payment volume drops below high-single-digit growth or value-added-services growth decelerates materially; that would be the clean falsifier for the bull case.
• Watch PYPL and SQ as relative shorts or underweights if card-network share gains continue; the thesis weakens if alternative payment rails show accelerating merchant adoption or regulatory pressure materially hits swipe economics.