Companies such as retail brokers, index providers and stock exchanges will "inevitably" suffer lower revenues in the years ahead, according to Sebastian Lyon, who runs the £4.1bn Troy Trojan fund.
He said investors were keen on financial services companies in these sectors as they felt trends, such as the decline in the number of employers offering defined benefit schemes, pension freedoms and ageing populations, meant such businesses were about "secular growth", that is, capable of growing over the long term regardless of the economic cycle.
For instance, fund manager Nick Train, who runs the £1.2bn Finsbury Growth and Income trust, invests in the London Stock Exchange Group, Hargreaves Lansdown, and other businesses, for these reasons.
Mr Lyon himself has for many years maintained a distinctly cautious outlook for the global economy, to the extent that he has about £200m of the fund’s capital invested in gold bullion, traditionally a defensive asset class.
However, Mr Lyon's ultra cautious approach has negatively impacted the performance of his trust. In the five years to 29 August, the fund has returned 27 per cent, compared with 44 per cent for the average fund in the IA Flexible Investment sector in the same time period.
Investors generally place a higher value on secular growth businesses than on "cyclical" companies, that is, companies which grow as the wider economy grows.
But Mr Lyon warned financial services businesses should more properly be viewed as cyclical businesses that have grown in recent years due to the value of the assets growing, and the asset growth is the result of economic policies which will change.
He said when the performance of economies changes, the value of assets held on platforms and by wealth managers will fall, and as a consequence, the revenues of such businesses will fall.
Mr Lyon’s comments come in light of data compiled by consultancy firm The Lang Cat, which shows assets held on UK platforms were £528.8bn at the end of June 2018, a ten per cent increase.
This increase came despite inflows onto those platforms being 15 per cent lower than in the same period in 2017, indicating the asset growth for those businesses came as a result of asset price rises.
david.thorpe@ft.com
