Edinburgh IT’s management fee has also been reduced from 0.6 per cent to 0.55 per cent and its performance fee of 15 per cent has been removed.
The trust slipped on to a discount after Woodford announced he was leaving Invesco, putting management of the trust in question. Rob Morgan, analyst at Charles Stanley Direct, says with that issue settled, it now represents a buying opportunity.
“If you are looking for a UK equity income portfolio, given it is now on a favourable discount, then this looks like a contender,” Morgan explained.
“I do rate Mark Barnett highly and I would normally be reluctant to pay a premium for a trust. As the majority of equity income trusts are now trading on a premium and you can get this on a discount, then now is a good opportunity,” Morgan added.
As well as managing the highly popular open-ended Invesco Perpetual High Income and Income funds, Woodford has headed up Edinburgh Investment Trust since 15 September 2008 – the exact same day Lehman Brothers filed for bankruptcy.
The trust has returned 108.11 per cent with Woodford at the helm, while its benchmark – the FTSE All Share – has returned 59.68 per cent.
Performance of trust vs index since Sep 2008
Source: FE Analytics
In October last year, FE Alpha Manager Woodford announced that he would be leaving Invesco Perpetual after 25 years’ service to start up his own business.
Barnett – who is also an FE Alpha Manager – was announced as Woodford’s replacement on the £13.6bn Invesco Perpetual High Income and the £9.4bn Invesco Perpetual Income funds, despite the fact he already runs the open-ended Invesco Perpetual UK Strategic Income fund, Keystone IT, Perpetual Income and Growth IT and Invesco Perpetual UK Select Equity IT.
Invesco Perpetual today announced that it has retained the mandate for the £1.1bn Edinburgh IT and that Barnett would again be replacing Woodford as manager.
As it stands, by May when Barnett takes over Woodford’s two open-ended funds, he will be in charge of assets under management totalling £25.7bn.
The majority of industry experts see Barnett as Woodford’s natural replacement and rate his abilities highly, given that he has returned 238.74 per cent over 10 years, beating his peers by more than 80 percentage points.
Performance of manager vs peers over 10yrs
Source: FE Analytics
However, much of that outperformance came when he ran a much smaller pot of money, and many of his investors may now be concerned that he has spread himself too thinly.
Morgan says he understands why some people would initially be worried about Barnett’s new role, but that in reality it will make little difference to his ability to outperform.
“I’m pretty relaxed,” Morgan said.
“Barnett manages all of these portfolios in very much the same way. The portfolios hold much of the same stocks, so it’s not like he is running a UK smaller companies fund here and a global equity fund there. By and large, they are all roughly the same sort of portfolios.”
“With that sort of large cap equity income strategy, it is scalable across a whole number of portfolios and a lot of money. Also, it was widely expected that Barnett would take over if Invesco kept the Edinburgh mandate,” he added.
Ben Willis (pictured), head of research at Whitechurch, recently told FE Trustnet that he had sold out of Invesco Perpetual High Income and switched into Barnett’s Invesco Perpetual UK Strategic Income fund to mitigate the risk of redemptions from Woodford’s fund.
Like Morgan, he is not concerned about the fact that Barnett has been given another portfolio to manage. “This was something I asked the manager and he said, ultimately, it’s not that much of an additional burden as his trading team is very good,” Willis said.
“One of the things you have to realise is that Woodford must have had a good back-room staff if he was to perform well running all that money. If that’s still intact, then it shouldn’t be too difficult for Mark Barnett.”
“It was quite a relief for us to hear that, as it was a real concern for us. He is going to be implementing the same process, so while he might tweak it around the edges, it shouldn’t quadruple his work-load,” he added.
Ewan Lovett-Turner, an analyst at investment trust specialist Numis Securities, admits that running that many funds could be difficult for Barnett, though he expects Invesco Perpetual to ease his work-load.
“Following the change, Mark now manages three UK equity investment trusts: Edinburgh IT, Perpetual Income and Growth (PIGIT) and Keystone, which have similar mandates and approaches,” Lovett-Turner said.
“Edinburgh IT is differentiated by a more concentrated portfolio and higher weighting in large caps, as well as a higher yield, 4 per cent, compared with PIGIT.”
“Even so, we believe there is a strong case for consolidation of the trusts, in particular regarding a potential merger of PIGIT and Keystone, which have very similar portfolios,” he added.
The analyst is also a fan of Barnett’s approach and says he is the most like-for-like replacement for Woodford. As a result, he says investors in the closed-ended Edinburgh IT should have no reason to sell the trust.
“We regard Mark Barnett highly as a manager and he has a similar valuation-driven approach to Neil, focused on stockpicking within a top-down macro framework, without being constrained by index weightings.”
“As a result we do not expect any fundamental changes to the portfolio. Mark has a strong track record with PIGIT, so we believe the trust is in safe hands.”
“In addition, the reduction in base fees and removal of performance fees is positive for investors and shows the continued trend in the sector, with 12 funds removing performance fees in 2013,” he added.
Since Woodford announced he would be leaving, Edinburgh IT’s share price has fallen.
Performance of trust vs index over 6 months
Source: FE Analytics
The trust has regularly traded on a premium over the past three years, however its recent share price performance means it is now trading on a 2.78 per cent discount to its net asset value.
Morgan says that given its discount, Barnett’s expertise and the fact that an agreement has been arranged to lower the management fees, now is a very good opportunity for investors to get into Edinburgh IT.
