FUND FOCUS
STEPPING into the shoes of an investment ‘legend’ was never going to be easy – even after 17 years of working and learning from him.
But by his own admission, Mark Barnett, head of UK equities at Invesco Perpetual, has had more than his fair share of difficulties since filling the void left by the departure of Neil Woodford to set up his own investment business.
Since taking over Woodford’s hot seat in March 2014, Barnett admits he had a ‘good’ 2014 and 2015. As for 2016 and 2017, he politely describes them as ‘challenging’.
Investors would probably use harsher words. Barnett currently oversees the management of assets totalling £19billion with the most high profile roles being the management of investment funds Invesco Perpetual Income and High Income. Since he took over, both have underperformed the FTSE All-Share Index and the average of their peer group.
The scale of underperformance may not be significant – a return of 22 per cent on Income (24 per cent on High Income) compares to a sector average of 27 per cent and an index return of 30 per cent – but troubling nonetheless and not flattering as far as Barnett is concerned. The largest contribution to Barnett’s poor relative showing is troubled subprime lender Provident Financial. Its share price collapsed last year after two profit warnings, the departure of its chief executive and regulatory probes at offshoots Vanquis Bank and car finance division Moneybarn. Since falling by 70 per cent in August last year, the share price has recovered, finishing on Friday at £7.15. This compares to a price of above £32 in April last year.
‘The stock is our biggest negative,’ says Barnett. ‘The share price fall was difficult to navigate around. We still hold it and as the price fell we bought more stock. But in terms of the holding it represents in our Income fund, it is now 1.1 to 1.2 per cent, not the near 3 per cent it was last August.’ He is confident the business – and share price – will recover.
Other ‘negatives’ have been holdings BT and Allied Mines where share prices have fallen sharply in response to profit warnings and major restructuring respectively. The only blessing is that Barnett was never tempted to hold income-friendly construction giant Carillion – it went into administration last month – but he does hold shares in outsourcer Capita whose shares fell last week after a profits warning.
Despite two difficult years, Barnett remains confident. He believes the UK economy is in good shape, helped in part by sterling’s weakness. With inflation falling away, he believes consumer spending will soon start improving, helping domestically focused businesses. This explains why he is keen on selected retailers – the likes of Next – UK focused insurers Aviva and Legal & General as well as budget airline easyJet. These positions complement key holdings in traditional income stocks AstraZeneca, British American Tobacco, BP and Royal Dutch Shell.
For the time being, the jury is out on Barnett. Despite being at the helm of Income and High Income for nearly three years, he has yet to convince fund broker Hargreaves Lansdown to include the two funds in its list of top recommendations – the ‘wealth 150 plus’. They were withdrawn once Woodford left for pastures new with the new Woodford Equity Income fund being included as soon as details of its launch were announced.