Have two new brooms cleaned up the mess at Invesco left by Son of Woodford?
ALTHOUGH it’s still early days, t he managers entrusted to repair the reputation of two of the country’s most popular investment funds have made a promising start. Ciaran Mallon and James Goldstone were asked jointly to take over the reins at Invesco Income and Invesco High Income last May after former manager Mark Barnett was sacked after a woeful six-year period at the helm of the two multi-billion pound funds.
Under Barnett’s stewardship, both funds shrank in size by an alarming 75 per cent as a result of a double whammy – poor stock selection and thousands of investors heading for the exit doors as performance deteriorated.
Barnett had taken over the running of the funds from Neil Woodford in the spring of 2014 after the latter (much lauded at the time) jumped ship to set up his own investment business, Woodford Investment Management.
It no longer exists after a string of disastrous investment decisions which resulted in the break-up of master fund Woodford Equity Income, triggering big losses for thousands of investors.
Given Barnett was dubbed ‘Son of Woodford’ for his close working relationship with the disgraced fund manager, Mallon and Goldstone could mischievously be called ‘ Sons of Barnett’ as a result of working for the former head of UK equities at Invesco. Mallon, 49, has been at Henley-on-Thames based Invesco for 16 years and also runs investment trust Invesco Growth and fund Invesco Income and Growth. Goldstone, seven years his junior, manages investment trust Keystone. But in an exclusive interview with The Mail on Sunday, the managers say they are determined to stamp their mark on the funds – now relabelled Invesco UK Equity Income and Invesco UK Equity High Income.
NO ONE can accuse the joint managers of sitting on their hands since taking command last May. Despite working remotely for the entire time, they’ve overhauled both portfolios. On the £3.3 billion High Income fund, they’ve sold 30 quoted stocks while buying 23. On the £1.5 billion Income fund, they’ve sold 30 and added 26. Over half of both portfolios have been changed.
So out have gone the likes of BT, British Land, Card Factory and IP Group. In have come Ashtead, Bunzl, Barrick Gold, Croda, RELX and Vodafone. Stocks such as BP, BAT, Legal & General, National Grid, Next, PureTech Health, Tesco and Whitbread have been kept – and in some cases added to.
The two funds’ portfolios are very similar with seven of the funds’ top ten holdings common to both. The main difference is that, as the name suggests, High Income has a greater emphasis on generating an attractive income for investors that it pays quarterly. In contrast, Income is run on a more total return basis with the scope to invest in smaller listed companies. So, for example, Income holds shares in FTSE 250 stock Coats Group, while High Income doesn’t.
‘It’s been a joint process,’ says Goldstone in explaining the overhaul of the portfolios, ‘a partnership of equals’. He adds: ‘It’s involved a lot of change and although it’s still early days, we’re really pleased with the results. The performance so far has been encouraging.’
Mallon adds: ‘If you look at the performance of the two funds since we took over and look at all the portfolio changes we have made – changes that have involved costs – we think it is quite creditable.’ It’s not flannel. The numbers back them up. Since getting their hands on the portfolios, the two funds have registered returns in excess of 20 per cent. Both have outperformed the FTSE All-Share Index.
Yet the long-term numbers still look horrendous. Over the past one, three and five years, the two funds have recorded double-digit losses. Over the past year, both have registered losses of 20 per cent – compared with an 8 per cent loss for the FTSE All-Share Index. The funds continue to shed investors. ‘What do we want to own in the portfolios has been our approach,’ says Mallon. ‘As a manager, you can either look back and find error, or be more positive and say, “What should the portfolios be built on? What will make a fantastic investment?” ’
Goldstone admits the changes have been dramatic, but was keen not to appear to be ‘conducting a fire sale of assets’ adding: ‘We’re at the point where we can say they are our funds, substantially ours.’
One hangover from the Woodford era i s the funds’ exposure to unquoted and illiquid smaller listed firms that should never been in an income oriented fund. As one fund manager said: ‘One of the reasons for the massive underperformance of the two funds in the past four to five years is that they were weighed down by the dross Woodford bought and Barnett could not sell.’
As at the end of last year, Income and High Income had 1.4 and 1 per cent exposure to unquoteds respectively, both spread across 13 companies and 20 holdings. They also had nearly 10 per cent and just over 8 per cent respectively of their assets in listed smaller companies.
Overall, Mallon believes the pair have started well at the helm of Income and High Income. Goldstone agrees. ‘Every decision we are making is a joint decision. We challenge each other. So far, one plus one is more than two.’
Though investment advisers are impressed, they are not yet ready to recommend the funds to investors.
For now, one plus one means two managers desperately trying to rectify the errors of the past.
LAWYERS at Leigh Day are a step closer to seeking redress for investors who lost money in the break- up of Woodford Equity Income. The firm has obtained funding and insurance for a claim against Link for letting the fund hold so many illiquid investments. Link declined to comment.