Jupiter’s Financial Innovation strategy has four sub-strategy buckets: yield; special situations; growth and structural growth. The structural growth sleeve is of particular interest in June 2020, since many companies, such as e-commerce vendors, driving or exploiting secular growth trends have continued growing revenues – even as the economy shrinks due to Covid-19 and lockdowns. Indeed, Covid-19 has in fact accelerated many multi-year trends, including the shift to cashless payments and cybersecurity solutions for remote working.
“Technology and digital transformation is at an early stage. It changes how we live and work, especially in financial services, where it brings a new era of disruption in payments, analytics, data and mobile banking. We identify both the beneficiaries of this change and the enablers providing solutions”, says Fund Management Director, Global Financials, Guy de Blonay. Therefore, the strategy can invest in both a broad spectrum of traditional financial services companies, and in selected technology and Fintech companies.
Intelligence comes from multiple sources: “we talk to technology companies and IT departments; banks and brokers and some independent research providers, and can subscribe for IPOs”, says de Blonay. “We want to understand what is at the top of their agenda”.
E-Commerce and Payments
In payments, the two main trends are shifting from instore retail to ecommerce, and from cash to cards. “Ecommerce should have at least a few years of growth left: the share in China is 20% and rising, against 15% in the US and UK, and below 10% in continental Europe and Japan”, says de Blonay.
“In payments, we own global players such as Adyen and PayPal, and also Worldline, which is listed in France, and Nexi, which is listed in Italy. These regional players are interesting because France and Italy have relatively low penetration of electronic payments. They can also benefit from a consolidation in Europe’s fragmented market”. Worldline has recently announced its intention to buy Ingenico to become the clear leader in the payment market in Continental Europe.
The growth stories differ between geographies: “in China, mobile payments have started to displace cards but we do not expect this to be repeated in Europe since the card networks have a dominant position and are trusted by merchants and customers. We own Visa and Mastercard”.
In any case, the best firms need to carry on raising their game to stay relevant. “As payment processing becomes commoditized, merchants expect their payment partners to add value through additional services, such analytics of industry sales trends or invoicing, that can help them attract more clients. We own Square. Omnicommerce also blurs the lines between online and offline retail, which creates a need for a single data pool to collect information and process payments. This unlocks new opportunities for firms such as Adyen, which is rolling out omnipresent payment solutions, forward analytics and other add on services to diversify its revenue sources.”
The payments space carries risks as well as opportunities. In response to Covid 19, de Blonay has reduced holdings in payments companies that have exposure to the travel industry, which can include liability for airline bankruptcies in some cases.
The cloud is another big trend seeing multi-year, double digit annual revenue growth, driven by cost cutting, faster upgrades, and working from home. De Blonay judges that cloud could finally be close to an inflection point leading to mass adoption. “Cloud started with Salesforce in 1999. For any new technology the first adopters are early movers as the majority of organisations are reluctant to incur the cost and take the risk of changing legacy IT systems. Gradually, it becomes more accepted by the peer group, and the value proposition becomes more clear. Cloud is now being used well beyond Salesforce’s early customer relationship management software or human resources software. We own Amazon, which owns AWS, and Microsoft, which owns Azure”.
Big data is another powerful force that de Blonay analyses from multiple angles. Data makes up a growing proportion of revenues for stock exchanges, driven by demand including three buy side trends of index-tracking, quant investing and ESG investing. Beyond bourses, other firms that can profit from the appetite for data include credit bureaus, such as Experian, and traditional data providers, such as IHS Markit. These two firms and several exchanges, including London Stock Exchange, Intercontinental Exchange, and Deutsche Boerse, are in the portfolio.
Covid 19 and Millennials
“Big Data apart, Covid 19 has acted as a catalyst for acceleration of these trends. The direction of travel was already well established, but the speed has changed. Additionally, Millennials and Generation Z are accelerating all of these trends. These age groups are much more tech savvy than baby boomers – or my own generation X. At some point, millennials will also enter the C suite and run companies”, says de Blonay.
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