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Invesco Perpetual High Income or Artemis Income: Which should you choose?

16 April 2014

FE Trustnet asks which of the two multi-billion pound funds represents the better choice for equity income investors.

By Alex Paget,

Reporter, FE Trustnet

The Invesco Perpetual High Income and Artemis Income funds have long been the stalwarts of the UK equity income space.

They have been firm favourites with retail investors, advisers and multi managers alike for the last decade or so and their assets under management have surged as a result.

For instance, Invesco Perpetual High Income currently weighs in at a hefty £13.4bn and though Artemis Income is comparatively smaller, it is still £6.7bn.

The funds form the core of a portfolio for thousands of income-seeking investors, but which fund should new investors choose?

The Invesco Perpetual offering has grabbed the most headlines over the past 12 months following the decision of FE Alpha Manager Neil Woodford to leave the group and the funds after 25 years’ service.

The portfolio has been handed over to FE Alpha Manager Mark Barnett, who is seen as the natural replacement to Woodford due to their similar styles and Barnett’s decent track record as manager of the five crown rated Invesco Perpetual UK Strategic Income fund.

Artemis Income, on the other hand, has been headed up by the renowned duo of Adrian Gosden and FE Alpha Manager Adrian Frost for more than 10 years.

Both funds are well-known for offering core large cap equity income exposure and their return profiles have been very similar over the years. However, in terms of total return, the Invesco Perpetual High Income fund has come out on top.

According to FE Analytics, while Artemis Income has been a top quartile performer and has beaten the FTSE All Share over 10 years, Invesco Perpetual High Income has been had the highest returns – in the sector over that time – 191.55 per cent – and has beaten Artemis Income by close to 50 percentage points.

Performance of funds vs sector and index over 10yrs

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Source: FE Analytics

Invesco Perpetual High Income has also outperformed over rolling one, three, five and seven year periods. Their comparative discrete performance paints a similar picture.

Given the nature of the companies the funds have historically held – which tend to be large-cap, often defensive names – both have usually outperformed in falling or flat markets, but have lagged in a strong rally.

Artemis Income, for instance, has only underperformed in four of the last 10 calendar years; 2004, 2009, 2010 and 2013.

However, Invesco Perpetual High Income has underperformed in just three of the last 10 years and while Artemis Income has been a top quartile performer in two of the six years it beat the sector, Woodford’s fund delivered top quartile returns in 2004, 2005, 2006, 2007, 2008 and was the top performing fund in the sector in the falling market of 2011.

All told, that means that Artemis Income has only managed to beat Invesco Perpetual High Income in three out of the last 10 years, which were 2009, 2010 and 2012.


Given those consistent returns, it is no surprise that both have scored highly in terms of capital preservation.

Artemis Income has top quartile downside risk, maximum drawdown, annualised volatility and Sharpe ratio over 10 years. However, Invesco Perpetual High Income has beaten it over all four ratios over that time. The results are also the same over cumulative three and five year periods.

The one area, however, where the Invesco Perpetual fund has fallen down is income generation, which is arguably the main characteristic an investor will look for when choosing an equity income fund.

FE Trustnet recently highlighted
that the Barnett’s fund has had to switch into the IMA UK All Companies sector as there are concerns that the portfolio won’t meet the IMA UK Equity Income sector’s criteria of delivering a distributable income in excess of 110 per cent of the FTSE All Share.

If investors had bought £1,000 worth of units in each of the funds 10 years ago, they would have received slightly more income from Invesco Perpetual High Income.

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Source: FE Analytics

However, as the table above demonstrates, investors would have earned considerably more from the Artemis Income fund if they had bought that same amount of units one, three or five years ago.

This is also reflected in the two portfolios’ current yield, as Artemis Income yields 3.9 per cent, which is roughly 60 basis points more than the Invesco Perpetual fund.

There are some subtle differences regarding the two portfolios make up as well.

For instance, Invesco Perpetual High Income is made up of 110 holdings while Artemis Income has 60 stocks. However, Woodford was renowned for holding a relatively long tail of new innovative start-up companies in his portfolio, but little is known as to whether Barnett will keep that exposure.

Also, investors who buy the Invesco Perpetual fund should realise that they will putting large parts of their capital in a select number of companies. The fund’s two largest holdings, for instance, are the pharmaceutical giants AstraZeneca and GlaxoSmithKline which make up roughly 20 per cent of the portfolio.

Barnett currently also has a high weighting to tobacco, with British American Tobacco and Imperial Tobacco making up close to 10 per cent of the fund.

On the other hand, the Artemis Income is spread more evenly. Nevertheless, Frost and Gosden hold 9 per cent of their portfolio in banks – an area that Barnett has no exposure to – and they also hold out of favour commodity stocks such as Rio Tinto and Glencore Xstrata in their top 10.

The Artemis Income fund does have a higher turnover rate as well – 90 per cent – whereas Woodford was renowned for a more buy and hold strategy, something which is expected to continue under Barnett.

Nevertheless, both funds do use their overseas allocation with non-UK stocks making up 10 per cent of Artemis Income and 20 per cent of Invesco Perpetual High Income.

Artemis Income does have a lower ongoing charges figure (OCF). Its clean share class’ charges are 0.79 per cent, while Invesco Perpetual High Income has an OCF of 0.92 per cent.



The expert’s view

Juliet Schooling-Latter (pictured), head of research at Chelsea Financial, rates both funds highly. However, she and her team are currently recommending Artemis Income over Barnett’s Invesco Perpetual fund.

ALT_TAG “The Invesco Perpetual fund has been on our buy-list in the past and we do like Mark Barnett, however we have moved it to a hold,” Schooling-Latter said.

“We are just wary of the fact that he may have to deal with outflows from the fund when more is known about what sort of funds Neil will be running at his new company. We are also concerned about how much Mark has now taken on, considering he is now running Neil’s funds and his own.”

Barnett currently manages seven portfolios, including three open-ended funds and four investment trusts.

Schooling-Latter is not alone in her concerns about redemptions.

For instance, Ben Willis – head of research at Whitechurch – has sold his holding in Invesco Perpetual High Income as he is concerned that Barnett may have to sell positions to match the money coming out of his fund that could end up in Woodford’s new venture.
 
Despite that, he is a big fan of Barnett and has bought his Invesco Perpetual UK Strategic Income fund as a replacement.

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