‘Yes, a few of my stocks have blown up re­cently’

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You could say Mark Bar­nett had the hard­est job in fund man­age­ment when, three years ago, he took over In­vesco Per­pet­ual’s gi­ant In­come and High In­come funds from Neil Wood­ford. Since then both man­agers have suf­fered, as sev­eral big stock se­lec­tions have not paid off.

Tele­graph Money spoke to Mr Bar­nett about his mis­takes, the fu­ture of oil and the stock that went from £1.50 to £12 a share. about how they are po­si­tioned against the in­dex. But that doesn’t make any judg­ment about whether the in­dex it­self is risky.

Mark Bar­nett, who runs £19bn for In­vesco Per­pet­ual, tells Sam Brod­beck about some of his win­ners – and losers

Be­tween 60 and 80. Our hold­ing pe­riod is about seven years on av­er­age. Even more so. The story was be­ing pieced to­gether in my own mind and it can take longer than you first be­lieve.

The busi­ness has not per­formed as well as I hoped, but in the past six months there is greater ev­i­dence that it is trans­form­ing. It is buy­ing back shares yet the mar­ket is still scep­ti­cal about its abil­ity to main­tain the div­i­dend – which I think is mis­placed. It will start grow­ing pay­outs again and a lot of peo­ple will be sur­prised.

The mar­ket has be­come very neg­a­tive on the prospects for big oil com­pa­nies, partly be­cause of the oil price and be­cause elec­tric ve­hi­cles are tak­ing off.

There is no doubt that the trend is to­wards more elec­tric ve­hi­cles, but that does not mean the world is go­ing to switch over in the next five years. I think hy­brid will pre­vail ac­tu­ally. Oil de­mand is roughly 100 mil­lion bar­rels a day; 20pc of that is con­sumed in pri­vate ve­hi­cles. Even if 10pc of cars switched to elec­tric glob­ally, and that would be a big shift, that’s only two mil­lion bar­rels fewer a day. con­trar­ian. It ticks all the boxes – it’s got po­lit­i­cal risk, reg­u­la­tory risk, pen­sion risk and UK risk. But I’ve been buy­ing more of it: it feels like a crescendo of bear­ish­ness but there’s a new chair­man com­ing in who is very ex­pe­ri­enced. There are grounds for op­ti­mism. Bur­ford Cap­i­tal, the le­gal fi­nance firm, has worked very, very well. In the past five years the share price has gone from £1.50 to £12. We bought into Thomas Cook in 2011 when it was go­ing wrong. We had a lot of in­flu­ence as a large share­holder talk­ing to man­age­ment as they re­built the bal­ance sheet. And we’ve been in con­stant con­tact with BP over the past two years. It some­times needs help with con­vey­ing mes­sages to the mar­ket. Next is an in­ter­est­ing story. It’s priced for an out­look that I think is a lot more pes­simistic than what we’re go­ing to get. The UK is in a much bet­ter po­si­tion, par­tic­u­larly in terms of con­sumer spend­ing, than peo­ple re­alise. Next has a num­ber of qual­i­ties that the mar­ket is choos­ing to over­look.

It has a mar­gin struc­ture that is highly flex­i­ble, it has a strong bal­ance sheet, it gen­er­ates a lot of cash and has a long his­tory of cre­at­ing share­holder value by buy­ing shares back.

It also has a prop­erty port­fo­lio of 500 shops, which is very flex­i­ble. If it sees the prof­itabil­ity of the stores de­clin­ing, it can re­shape the port­fo­lio quite quickly. There are lay­ers of re­silience in the busi­ness. Yes, in the short term there are fears be­cause the firm’s earn­ings pro­gres­sion is un­der pres­sure, but I think it has sta­bilised. The most re­cent up­date had dis­ap­point­ing sales but it was in­ter­est­ing the com­pany didn’t change its profit guid­ance. The stock price fall­ing 10pc af­ter that was an over­re­ac­tion. You’ve got a share sit­ting on a val­u­a­tion of only 11 times earn­ings, yield­ing nearly 8pc. The mar­ket is ner­vous about re­tail, in part be­cause of the econ­omy and in part be­cause of the Ama­zon ef­fect, the feel­ing that th­ese new on­line busi­nesses are all-pow­er­ful and all-con­quer­ing. Un­doubt­edly that ex­ists but I think the ef­fect is over­done. The “Fangs” [Face­book, Ama­zon, Net­flix and Google] are ex­tremely pow­er­ful busi­nesses but the mar­ket is only see­ing the up­side; I worry about that.


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