What Mark Barnett told Wealth
‘ I WOULD encourage investors to read my response to the recent Morningstar downgrades. It is available at invesco.co.uk and explains why I – and Invesco – disagree with the assessments made.
The differential between expensive, globally orientated stocks and depressed economically sensitive shares remains substantial due to persistent political uncertainty in the UK and related weakness in sterling.
As the wider market continues to ignore the value now available in domestic equities, I have positioned my funds to take advantage of this mispricing. This tilt, coupled with the reality that the
FTSE 100 index is dominated by international stocks, has led to a natural increase in the proportion of the funds invested outside of the top tier of the index. However, the funds’ liquidity remains strong and I continue to invest across the market-cap spectrum.
More than two-thirds of the funds are invested in publicly listed companies worth more than £1 billion. Conversely less than 1 per cent is invested in publicly listed companies worth less than £100 million.
There are compelling opportunities for active investors who are able to look beyond the market’s short-term pessimism. When the market does not value stocks correctly, private capital enters and we have seen a marked increase in merger and acquisition activity. The range of deals is clear evidence there is unrecognised value in the UK stock market.
Invesco Income and Invesco High Income have been beneficiaries of such deals over the past year – with BCA Marketplace and KCOM being bought by private buyers. It is my view that we will continue to see more deals from the private equity and corporate markets.
Whilst capital appreciation of the two funds has been challenged, i ncome generation i s strong. Delivering growth in income is a core part of the mandate for these two funds and I believe that the compounding of income over time is central to total investor return. The income offered in my portfolios is better diversified, better covered and offers better growth than the UK equity market.
In the past few weeks we have seen evidence of the latent potential in the funds as sentiment around political resolution has improved. At its core, active equity investing is about being prepared to take a longer view than the market. Investors in my funds are posi’ tioned to benefit from a revision to current consensus and I believe we are on the cusp of this potential being realised.