Financials: A Tech-Driven Opportunity

Spring 2026 | Download PDF

We believe Financials is one of the most exciting and potentially rewarding sectors for active investors. Not only is it one of the largest and best-performing sectors globally, but it is also well positioned to likely benefit from advancements in technology. AI-driven change offers both larger incumbents and smaller innovators extraordinary opportunities to create new services in digital banking and insurance, exploit data, reach new markets, and remake the financial industry. In addition, the sector is a beneficiary of several other transformative secular growth trends, including the largest generational wealth transfer in history, rising exposure to private markets, and expanding financial inclusion around the world. Given the scale and range of these long-term tailwinds, Financials can present a compelling investment opportunity for investors seeking excess returns and relatively stable growth exposure in their portfolios.

Large and Diverse

Financial Services is the second-largest sector in the global equity markets, totaling roughly $27 trillion in market capitalization. Financials has also been the third-highest performing equity sector over the last 10 years (Exhibit 1). Even modest gains can translate into outsized growth for companies, especially for those aligned with the long-term secular trends shaping the sector. The Financials sector is also diverse, spanning traditional banks, insurers, and asset managers, as well as financial-related companies such as payments, exchanges, and data providers.

On the Cutting Edge of Technology

Financial services firms continue to invest heavily in innovation. Banks and other investment services spent $773 billion on technology in 2025, more than any other industry, and that figure is projected to rise each year (Exhibit 2).

This is creating strong tailwinds for financial businesses to potentially capitalize on tech-driven change.

Digitization of financial services

Digital-first providers are increasingly challenging incumbents that rely on physical branches and manual processes. This accelerating shift toward digital finance services presents an opportunity for disruptive companies to capture incremental market share.

Shift to electronic payments

$11 trillion of consumer payments and $24 trillion of commercial payments are still made each year with cash or check, leaving substantial room for continued growth of electronic payments.¹

E-commerce

U.S. online sales continue to grow much faster than in-store sales, yet e-commerce accounts for only about 15% of total retail sales.¹ This low penetration highlights a significant runway for further growth and market share gains.

AI

The financial sector is poised to be the prime beneficiary from the explosive growth in AI capabilities. Financial companies rely on data to inform lending and underwriting decisions, which are well-suited for AI-driven improvement. In addition, financial institutions can leverage AI to automate manual processes, potentially leading to higher margins and faster earnings growth. Financial companies so far haven’t directly benefited from the AI infrastructure buildout, but they may benefit from using AI. We view Financials as a nice complement to tech-heavy portfolios.

As technology adoption accelerates, the gap between financial outperformers and underperformers is widening. Firms that are embracing and using transformative technologies are expected to grow three times faster than traditional banks from 2023 to 2028.² Notably, since the global financial crisis, the number of asset-light, service-oriented companies has more than doubled among the top 25 financial businesses , displacing traditional asset-intensive financial institutions (Exhibit 3). This suggests that the industry shift toward disruptors is already well underway.

Secular Growth Trends

In addition to technology, several secular growth themes are transforming investing opportunities in the Financials sector. These themes include optimism around banks, rising demand for private markets, expanding financial inclusion, and the largest generational wealth transfer in history.

Optimism around banks

After many years of underperformance and lackluster growth, banks are reporting stronger earnings thanks to a steepening yield curve and easing regulations. At the same time, capital market activity is increasing, boosted by higher asset values, strong trading activity, elevated issuance of equity and debt, and rebounding M&A. Together, these dynamics are reinforcing the role of financial institutions at the center of the economy.

Rising demand for private markets

Private capital market assets have more than doubled over the past 12 years to $22 trillion, much of it from institutional investors.³ Individual investors, however, have relatively small allocations to private assets, and we see room for growth as private asset managers leverage technology and product innovation to broaden access. This highlights substantial room for growth among individual investors, supported by projections of 11% plus annual growth in private markets through 2028.³

Expanding financial inclusion

In emerging markets, rising smartphone adoption and favorable demographic trends are enabling fintech and e-commerce to reach underserved communities. These nimble, innovative platforms are bypassing traditional infrastructure to deliver low-cost access to credit, insurance, and investment services. Expanding the global footprint of financial services creates significant growth potential, supported by the growing middle class across regions in Southeast Asia and Latin America.

Largest generational wealth transfer in history

The U.S. baby boomer generation accounts for 20% of the U.S. population, but they own 31% of the wealth—or more than $85 trillion in assets. Millennials, in contrast, hold about one-fifth that amount, and their younger counterparts, Gen Z, hold less than one-tenth.⁴ As baby boomers age, these assets will inevitably transfer to younger heirs. If past and current trends are consistent, firms that have modernized their offerings and distributions models are well positioned to capture these assets and deepen client relationships.

Together, these trends create a long runway for financial businesses that leverage technology, data, and software to scale efficiently, thereby contributing to a growing, increasingly differentiated opportunity set.

Financials: An Active Opportunity

Many growth-oriented investors are underweight Financials—especially given technology’s recent outperformance—but we believe the sector presents a compelling opportunity. The size, performance, and secular growth trends of the Financials sector make it a rich environment for skilled active managers. Financial services are the backbone of the U.S. and global economy, providing vital services and helping to maintain financial stability. They have delivered strong returns to investors over the long term. The industry is also undergoing transformative change, offering a diverse range of opportunities. Broad financial indexes and passive strategies remain heavily weighted toward traditional, legacy institutions with lower growth potential, often overlooking capital-light, service-oriented innovators that are best positioned to benefit from secular change and potentially deliver stronger profitability (Exhibit 4).

We believe Financials are an opportunity to gain select, relatively stable growth exposure in their portfolios. In our view, investors are most likely to enjoy these benefits through active managers with strong resources, an established process, and deep experience in the sector.