Much of the credit has to go to Woodford, who managed the funds until early March.
But while all the talk has surrounded Woodford’s new fund, the multi-billion pound funds have produced top quartile returns in their highly competitive sectors, with significantly less volatility, despite the outflows and change of management. Income and High Income are up 4.36 and 4.92 per cent respectively in 2014, which compares to 3.19 per cent from the FTSE All Share.
The larger Invesco Perpetual High Income fund was forced to move into the IMA UK All Companies earlier this year due to its inability to hit its 110 per cent yield target on a consistent basis.
Performance of funds, sectors and index since 2014
Source: FE Analytics
The funds have coped much better than their rivals and the index during market sell-offs over the period – a characteristic that has defined them over the past 25 years or so.
Since news of Woodford’s departure on 15 October 2013, the funds have both returned over 9 per cent, putting them comfortably ahead of the FTSE All Share and their sector averages.
Woodford is responsible for much of that performance and handled many of the outflows before leaving the funds in March, eight weeks before originally intended, but Barnett has headed the portfolios since then.
Rob Gleeson, head of FE Research, says that the performance has proven a lot of doubters wrong, who worried that the funds would struggle to cope with the outflows.
FE data shows that Invesco Perpetual Income and High Income have suffered outflows of of more than £4.5bn over the past six months.
The Income fund has suffered particularly, with outflows close to £3bn over the period. Overall, the size of the portfolio has fallen from £10.2bn to £8.3bn since November 2013. This is a fall of more than 20 per cent.
When he asked whether he’s surprised the funds have contended so well with the outflows, he said:
“I’m not particularly surprised, no. We had some concerns initially, but worked out that it could contend with a third of outflows before the smaller positions in the tail would start to get hit. [Barnett's] started selling down his positions in these, and performance has been fine.”
“I think a lot of people either overestimated the outflows, or underestimated the liquidity in those positions.”
Gleeson says he continues to rate Barnett as one of the strongest managers in the IMA UK Equity Income sector.
“We think the infrastructure at Invesco is very good, and we think Barnett is a very good manager,” he said.
“We’d much rather stick with a proven manager who has been at a firm and in a team for many years than take a risk on an unknown entity like Woodford’s new fund.”
Gleeson acknowledges that further outflows could follow when CF Woodford Equity Income opens for business in June, though he says the way the fund has coped so far bodes well – especially as the tail of the portfolio containing micro-cap companies has been reduced.
Barnett’s £439m Invesco Perpetual UK Strategic fund has performed even better than its larger counterparts, delivering 5.7 per cent year-to-date, and more than 11 per cent since October last year. Both of these figures put the fund in the top decile of the IMA UK Equity Income sector.
Many believe that the fund will be merged with the two larger vehicles once redemptions have settled down, though Invesco has said nothing to suggest this is its intention for the time being.
Andrew Alexander, head of investment at Three Countries, says the fund is a possible alternative for those worried about further outflows from Invesco Income and High Income. It is one that Gleeson and his team rate very highly as well.
“It differs from Invesco’s Income and High Income funds in that the manager is not limited by the fund’s size and can therefore invest in some small and medium sized companies if he believes they represent a compelling opportunity,” they said.
As well as outperforming Invesco Perpetual Income and High Income in 2014, Strategic is ahead over one, three, five and seven year periods, and is coming ever closer to overtaking its rivals over a 10 year period.
Performance of funds and index over 3yrs
Source: FE Analytics
Alexander thinks that the fanfare surrounding Woodford’s appointment has been overdone, and has no plans in selling out of Barnett.
“Barnett been working there for 17 years, and over that time it’s not just been Woodford who’s been making the calls and decisions, I can assure you,” he said.
“I’ve heard some people saying Woodford will be able to be more nimble because he has less in the way in assets, but I’m not buying that. He’s a large cap manager and will be pretty much picking from 50 stocks, so the size has no bearing.”
“The only difference is the lack of resource. Can he perform better than he has previously? He may do, but given he’s lost his team and has less infrastructure I think a change in performance is more likely to be down in my opinion,” Alexander added.
Those worried about further redemptions could also back one of the manager’s top-performing investment trusts, which are closed-ended and therefore not subject to inflows or outflows. Keystone IT and Edinburgh IT are both established options, and on slight discounts.