Woodford’s decision to leave Invesco Perpetual and set up his own fund management business has sent shockwaves throughout the industry, with many industry professionals selling out of the funds now under control of Barnett (pictured right). However Ashfield points out FE Alpha Manager Barnett has built up a sterling reputation in his own right, and won’t be selling out of Edinburgh IT as a result – indeed, he says he actually bought more of the trust for his Consistent Practical fund on the back of short-term weakness in October and November last year.
“Manager risk is a big issue for us, and what happened with the Edinburgh IT recently a good example,” said Ashfield.
“We’ve actually bought more of the trust on the back of [the widening discount. It’s now up to 4.5 per cent of the trust, but that’s only because we rate [Mark Barnett] so highly.”
“We were hurt in the short-term, with the widening discount costing it 10 to 12 per cent. However, as it turned out this was a buying opportunity.”
“If anything I’d actually say he’s better than Woodford. If you compare Perpetual Income & Growth with Edinburgh IT in recent years, the former has been a lot better.”
The Edinburgh IT went from a small premium to a discount of around 6 per cent immediately after Woodford’s announcement. The trust shed around 6 per cent on the back of the news, but the strong performance of the FTSE All Share at that time means the relative underperformance was closed to 12 per cent.
Performance of trust and index over 1yr
Source: FE Analytics
Barnett has since been announced as the permanent manager of the trust, and the share price and discount have both recovered over that time. Edinburgh IT is currently trading on a 2.8 per cent discount according to data from the AIC.
As Ashfield points out, Barnett has a significantly better record than Woodford (pictured left) in recent years.
Over the period that the latter ran the Edinburgh IT between September 2009 and January 2014, Barnett’s Perpetual Income & Growth trust has beaten it by some 20 percentage points, and also has a superior record over a one, three and five year period.
Barnett looks just as good when measuring net asset value (NAV) performance, which strips out the effect of a narrowing discount. FE data shows Perpetual Income & Growth IT returned 72.54 per cent, compared to 56.26 per cent from the Edinburgh IT.
NAV performance of trusts and index Sept 2009 – Jan 2014
Source: FE Analytics
Ashfield also holds the Perpetual Income & Growth IT in his Consistent Practical fund – a portfolio of mostly UK equity income investment trusts.
Barnett also comes out on top when looking at the record of the pair’s open-ended funds. His £411m Invesco Perpetual UK Strategic Income fund is ahead of the £13.5bn Invesco Perpetual High Income fund over a one, three and five year period, and has very recently edged ahead over 10 years as well.
Source: FE Analytics
Investors will point to the size of Invesco Perpetual High Income as hampering Woodford’s ability to add value in recent years, but Ashfield says such an argument cannot be levelled when looking at the Edinburgh IT and Perpetual Income & Growth IT.
“These are much more similar in size,” he said, adding: “Barnett is very good and has to be up there as one of the best UK equity income managers around. The only concern we have is that he’s now running too much money, but only time will tell.”
Barnett’s willingness to hold a higher portion of his portfolio in mid-caps and companies at the lower end of the FTSE 100 has been a big driver of performance of late. Success stories include top-10 holding Thomas Cook, which is up more than 800 per cent over a two year period.
Charles Cade, an analyst at Numis Securities, thinks there is a difference in attitude towards the Woodford versus Barnett debate in the investment trust industry.
While Woodford’s longer track record and greater pool of assets have ensured he is regarded as the number one player among open-ended managers, Cade says Barnett is the more established individual in the closed-ended universe.
“I think there is a big difference yes – Barnett is very well known in the sector, and has been running more trusts for a much longer period,” he explained.
“The pair have worked very closely together and have a very similar approach, and on this side people are very comfortable with the change. His track record has been stronger – he hasn’t taken as strong sector bets but has benefited from a greater tendency to invest in small and mid-caps.”
Cade agrees with Ashfield that the one question mark over Barnett is how he reacts to running more money.
“There have been questions asked about the amount of money Woodford has been running and whether he has been overly constrained. Barnett is taking a lot of that on, and will need added resources at Invesco to reflect that,” said Cade.
When choosing between the Edinburgh IT and Perpetual Income & Growth IT, Cade says the latter currently has a higher exposure to small and mid-caps, though Edinburgh has made some minor changes to close the gap since Barnett took over.
Cade says he has tended to favour Perpetual, but thinks a widening discount in Edinburgh would get him very interested.
“The Edinburgh IT has more expensive gearing but has cut its fees recently and is now cheaper,” he said. “There is a case for holding both, particularly if the Edinburgh trust goes out to a discount of 5 or 6 per cent again.”
The Edinburgh IT has ongoing charges of 0.71 per cent, compared to 0.94 for Perpetual Income & Growth IT. Both currently have a performance fee on top of this, though.
Mark Dampier, head of research at Hargreaves Lansdown, says he will stand by Woodford as the manager has more longevity than Barnett. However, he says this should take away nothing from Barnett as a manager.
“I will stick by Neil as I have done for more than 20 years, but that doesn’t mean Mark is suddenly a bad managers – far from it,” he said.
Dampier hasn’t ruled out holding funds run by Barnett and Woodford in the future, depending on what focus the latter’s new funds will take on.
