The disruptors that help keep Jupiter a star

ECONOMIC slowdown is not good for any business, but for financial companies – banks and insurers in particular – it can do untold harm to their profits and make their shares unappealing to investors.

Just think back to 2008 for an extreme example of this when a global economic maelstrom brought down US investment bank Lehman Brothers and in the UK nearly triggered the collapse of both Royal Bank of Scotland and Lloyds.

With recession a real possibility in the UK and the wider global economy, most experts believe now is not a good time to have exposure to a portfolio of financial stocks.

In theory, Guy de Blonay, manager of the £614million investment fund Jupiter Financial Opportunities, agrees with this. But in practice, he believes there are still plenty of ways to extract value from a portfolio of listed financial companies. The key, he says, is to identify companies that, irrespective of economic backdrop, will thrive.

Businesses, for example, that are benefiting from the relentless march towards the digitalisation of banking, the move towards a cashless society, the need for greater cyber security and the increasing use of artificial intelligence in the provision of banking and financial services.

It is no surprise therefore to learn that the fund’s 45-stock portfolio does not include any of the mainstream UK banks such as Barclays, HSBC or Lloyds. De Blonay says: ‘To invest in UK banks, you ideally want interest rates to be rising and there to be no recession in sight. Neither of those conditions is being met.’

He also says that the Brexit factor is another negative. The fund’s UK exposure, at 9 per cent, is currently limited to stakes in FTSE100 listed London Stock Exchange Group and private equity specialists 3i and Intermediate Capital. De Blonay adds: ‘For the past three years, I have taken the view that low interest rates, here and in the rest of the world, will persist. This creates big challenges for large banks and insurers. But there are plenty of financial companies out there who are thriving, either by embracing change and radically reducing costs, or by disrupting the way financial services are traditionally delivered.

‘Technological change will continue to drive growth in the global financial sector, whether it is a result of companies embracing or adopting it – or companies enabling such change to happen through new innovations and services.’

Companies involved in the processing of electronic payments – a growing market – feature strongly in the fund. They include US companies Global Payments, Visa, Mastercard, Fiserv and Fidelity National Information – all top 10 fund holdings by size. A number of these companies, says de Blonay, have benefited from taking over rivals – for example, Fidelity’s recent acquisition of competitor Worldpay and Fiserv’s purchase of First Data – and further industry consolidation is inevitable.

Among the adopters of technology is Topdanmark, Denmark’s second largest insurance company and a key holding in Financial Opportunities. De Blonay says: ‘Twenty per cent of motor claims are now dealt with by Topdanmark over the internet via artificial intelligence.’

Over the past five years, the fund has produced an impressive overall return of 90 per cent. The annual ongoing charge is a tad over one per cent.