The new ‘contrarians’... buying blue-chip stocks
B BEING a contrarian investment manager – going against the crowd – is n not particularly goo good for the blood pressure, or the patience of i investors k keen at all ll times to see their wealth soar to new heights.
But it helps if you have been trained in the art by Neil Woodford, one of the country’s most successful – and contrarian – investment managers ever.
Step forward Martin Walker, fund manager at Invesco Perpetual. He joined the Henleyon-Thames investment house in 1999 as an analyst for Woodford. His arrival came as a host of investment ‘experts’ were questioning Woodford’s refusal to expose his two big funds, Invesco Perpetual Income and Invesco Perpetual High Income, to the booming technology sector.
Woodford stood firm despite his funds lagging behind rivals, saying the dotcom bubble would pop. In March 2000, within months of Walker’s appointment, he was vindicated as it burst spectacularly.
Though Woodford has moved on to set up his own booming investment house, Woodford Investment Management, his contrarian investment style has obviously rubbed off on Walker, who now runs two Invesco funds, UK Growth and UK Focus. They are managed along similar lines, with UK Focus’s portfolio being a more concentrated version of UK Growth.
While there is no dotcom bubble waiting on the horizon, Walker believes there will be a big shift in the UK stock market in the near future, so he has set up the two funds to benefit when this shift comes.
He says: ‘The UK stock market represents a number of moving parts. Currently, the obsession is with low economic growth in a low inflationary environment. That means most fund managers are keen on defensive stocks, for example, utilities and consumer staples. But I am convinced that at some stage, inflation will come back, oil prices will rise sharply and economic growth will be much better than expected.
‘There are great pockets of value out there in the stock market, especially among some deeply unloved blue-chip stocks. It’s where my two funds are positioned, in the hope of some of these great unloved stocks becoming again the great loved.’
The result is two funds laden with oil and financial stocks that most rivals are more circumspect about – for example BP, Shell, HSBC, Barclays, Royal Bank of Scotland and Lloyds Banking Group.
‘I find it rather ironic that I’m being contrarian by purchasing some of the market’s biggest stocks,’ he adds. ‘It doesn’t make complete sense.’
Walker’s contrarian ways mean periods of poor relative investment performance are virtually guaranteed. So, over the past year, both UK Growth and UK Focus have underperformed the FTSE All-Share Index and the average performance delivered by rival funds.
But of course, the hope among investors is that the two funds will outperform in the long term – as they have done in the past – and as Walker’s market prognosis becomes reality.
Invesco is still very much in rebuilding mode following the departure of Woodford in early 2014. Its UK team, under the leadership of Mark Barnett, has got its collective head down, though it has yet to convince some fund analysts that it is the force it once was. Hargreaves Lansdown, for example, has none of Invesco’s UK funds on its recommended list of top funds.
Walker said the Chancellor’s move in last week’s Budget to reduce tax bills by increasing personal allowances and the threshold at which higher rate income tax is levied was ‘good’ for both the economy and the stock market.