Why didn’t ANYONE stop Son of Woodford sooner?
As failing fund boss Mark Barnett is fired, investment experts demand to know...
IT WAS only a matter of time. So Friday’s announcement that fund manager Mark Barnett – dubbed ‘Son of Woodford’ – had left investment house Invesco by ‘mutual’ consent hardly took financial experts by surprise. Speaking to a number of investment advisers on Friday, the consensus view was that he should have been jettisoned by Invesco a long time ago, so consistently poor had been his decision-making in recent years on key multibillion pound funds once loved by hundreds of thousands of private investors.
‘In well run businesses, if you continually underperform you’re booted out,’ said investment expert Brian Dennehy, someone who never pulls his punches on matters of investment importance. ‘So why should it be so different in the fund management industry? Barnett had long overstayed his welcome. He should have been shunted out long ago.’ Ouch.
Jason Hollands, a director of wealth manager Tilney, was equally damning. ‘The writing had long been on the wall given the dire performance Barnett had delivered on Invesco’s flagship UK investment funds. We’d lost faith in him some time ago. It’s now an opportunity for Invesco to reset the dials, although it will take time to repair the impaired fund track records he has left behind.’
Ben Yearsley, a fund expert at Shore Financial Planning, was a little more forgiving, but agreed that Barnett had long passed his sell-bydate. He said: ‘It feels as if this had been coming for a while. Barnett’s funds have had a torrid time of late, first undone by Brexit and then the Covid-19 outbreak.
‘However, all UK investment managers have had to deal with these macro events and their funds have weathered the turmoil far better. Ultimately, the poor performance has to be down to Barnett’s investment decisions.’
For Barnett, it is an ignominious end to a 24-year career at Invesco Perpetual – the page bragging about his experience as a specialist in UK equity income investing was quietly removed from Invesco’s website on Friday.
For much of his time at the Henley-on-Thames based fund management operation, he was Neil Woodford’s right-hand man. He basked in the manager’s glory as Woodford steered Invesco’s multi-billion pound flagship funds – Income and High Income – through the bursting of the dotcom investment bubble in 2000 and on to a long run of success. A period of outperfomance built on investing in some of the UK’s most defensive and solid stocks – for example, pharmaceutical stocks and shares in tobacco companies.
When Woodford, puffed up by his success, left Invesco to set up his own doomed investment operation in 2014 just down the road in Oxford, it was Barnett who stepped into his shoes.
As well as being appointed head of UK equities, he took over responsibility for a number of Invesco funds and stock market-listed trusts previously managed by Woodford.
But key as far as Invesco was concerned would be his successful management of Income and High Income, multi-million pound annual fee earners for the US-owned fund management house.
Barnett was on a hiding to nothing from the word go. First, he had to sit back while advisers switched money out of High Income and Income into Woodford’s newly launched Equity Income Fund. The ‘Master’, they said, is better than the ‘Son’. Secondly, he struggled to stamp his own mark on the two funds, understandably preferring to carry on doing the things Woodford had previously done so well. That is, continuing to invest the funds in the same undervalued stocks that Woodford had liked – as well as maintain a small portfolio of unquoted companies built up by his predecessor.
When this approach, built on the ‘value investing’ principles that had served Woodford so well in the 2000s, failed to deliver, Barnett was in trouble. Money haemorrhaged out of the funds, Barnett had to sell stock into a falling market to pay those investors wanting out, and investment losses piled up.
The numbers do not lie. When Barnett took over management of High Income and Income, they had assets of £13.1billion and £8.3billion. Today, they are valued at £3.3 billion and
£1.5 billion respectively. According to fund data provider Financial Express, the two funds have recorded losses over the past three years of 40 per cent – give or take a fraction of a percentage point.
Over the same period, the FTSE All-Share Index has registered a loss of 13 per cent while the two funds’ peer group have generated an average loss of 0.5 per cent. Woeful Invesco numbers, however they are dissected.
Peter Sleep is a senior portfolio manager at Seven Investment Management. On Friday, he told Wealth: ‘I think Barnett followed too closely in Woodford’s footsteps.’
In particular, he is critical of Barnett’s decision to continue to hold – and add to – a number of small and mid-cap stocks that went on to perform poorly (such as Provident Financial, New River Real Estate and Raven Property). He also says most of the unquoted stocks in the two funds, bought by Woodford but then held by Barnett, were akin to pouring ‘money down a drain’.
Although Invesco has shaken up the UK equities team in the wake of Barnett’s departure, changed the names of High Income and Income (to UK Equity High Income and UK Equity Income), and merged away a couple of other UK funds, Sleep says it will probably not be enough to revive the UK team’s fortunes – in the short-term at least.
He believes Invesco’s failing was to allow a star fund manager culture to embed itself at Henley-onThames. One that allowed Woodford and then Barnett to rule supreme with little in-house oversight or questioning of the risks they were taking with investors’ money.
Also, unlike other investment houses such as Fidelity, there was no bank of in-house research analysts presenting Barnett with their best investment ideas. He was Mr Ideas.
The good news, says Sleep, is that the UK equity team’s funds will now be regularly assessed by investment risk experts working from Invesco’s New York offices. That’s fine and dandy. It’s just a shame it didn’t happen before Barnett decimated the wealth of many retail investors’ portfolios.
Barnett had long overstayed his welcome