The FE Alpha Manager was made co-manager of the £3bn Invesco Perpetual Distribution fund from January 2004, handing over to Ciaran Mallon in October 2013 – just a day after he announced his resignation.
The fund sits in the IMA Mixed Investment 20-60% sector, targeting a combination of income and capital growth over the medium to long term by investing in equities, bonds and cash.
Woodford (pictured) ran the £4bn Invesco Perpetual Monthly Income Plus fund since its launch in February 1999, and again was replaced by Mallon in October last year.The fund, which sits in the IMA Strategic Bond sector, has a similar remit to Distribution but can only hold a maximum of 20 per cent in equities.
Both funds had been very successful under Woodford and co-managers Paul Causer and Paul Read, consistently outperforming from a total return point of view, and delivering steady and in most cases rising levels of income.
Performance of funds and sector Feb 2004 – Oct 2013
Source: FE Analytics
FE data shows that both funds were both top decile performers in their respective sectors in the 10 years to Woodford’s departure, more than doubling investors’ capital over the period.
Distribution and Monthly Income Plus are also among the best income generators over that period, returning dividends worth £6707.21 and £8,557.39 from an initial £10,000 investment, respectively.
Both funds pay out dividends monthly, making them extremely popular with investors in retirement.
The factsheets of both are among the most popular with financial advisers according to data from FE Trustnet and FE Analytics.
Income earned from an initial £10,000 investment Oct 2003 – Oct 2013
Source: FE Analytics
Woodford ran the equity portion of both Distribution and Monthly Income Plus, drawing on the best ideas from his flagship income funds.
As you’d expect, stocks such as Glaxo, Astra, BAT and Imperial Tobacco have been big positions for some time.
Both funds have been in the coveted FE Select 100 list since it was first launched in 2012, and while Invesco Perpetual Income was put on hold following Woodford’s resignation, both have remained a “buy” throughout.
“Causer and Read were responsible for the make-up of the portfolio – not Woodford,” explained FE Research analyst Charles Younes.
“He was responsible for the stocks, but the strategy itself was run by Causer and Read, who are still running the fund.”
The equity weightings have indeed stayed broadly in line since Mallon took over, making up 35 per cent of Distribution and 16 per cent of Monthly Income Plus.
The cash and fixed interest weightings have also remained stable. Mallon has certainly made his mark on the equity portion of the fund, however, decreasing the mega cap exposure.
Like Woodford, the manager has a bias towards defensive, quality large cap stocks with sustainable dividend potential; however, he’s cut down the weightings to Glaxo and Astra – two of Woodford’s favourite stocks – as well as BT, BAE Systems and Roche.
Co-operative Bank has been added to the top-10 holdings of both funds, while Whitbread, Next and Smith & Nephew are now major holdings in Distribution.
Glaxo is no longer a top-10 holding in either fund.
Mallon is rated highly by the FE Research team, who previously included his five-crown rated Invesco Perpetual Income & Growth fund in the FE Select 100.
“Read and Causer run their sub-portfolio independently of Mallon’s, but the overall fund benefits from the three managers’ complementary skills and contrasting investment strategies,” they said in relation to Distribution.
As for the performance, the Distribution fund is a top-quartile performer since Woodford departed, delivering returns of 4.62 per cent.
It is currently yielding just over 4 per cent. Monthly Income Plus has marginally underperformed the benchmark thanks to a slight blip in the past two weeks or so, but Younes says the risk-profile of the fund has remained the same.
It is currently yielding 4.72 per cent.
Performance of funds and sectors since Oct 2013
Source: FE Analytics
Unlike Invesco Income and High Income, neither Distribution nor Monthly Income Plus have suffered significant outflows since Woodford’s resignation.
FE data shows the former has actually seen inflows total over £400m over a 12 month period.As well as leaving two mixed asset and two equity income funds behind, Woodford has also relinquished responsibility of the £1.4bn Edinburgh Investment Trust, with FE Alpha Manager Mark Barnett (pictured) taking over in January of this year.
Shareholders reacted badly to Woodford’s resignation, seeing the trust moving from a slight premium to a discount of over 6 per cent in October last year.
This contributed to a 6.56 per cent fall in the share price over a two day period.
Some investors such as FE Alpha Manager Sean Ashfield used the dip as a buying opportunity and have been rewarded in doing so.
Barnett’s appointment has seen the trust go back onto a slight premium, and this has contributed to Edinburgh’s outperformance versus its sector and benchmark since 28 January, with returns of 8.12 per cent.
Performance of trust, sector and index since Jan 2014
Source: FE Analytics
Ashfield told FE Trustnet that he believes Barnett is a better manager than Woodford, not least because he has been prepared to add value in stocks down the market cap scale.
Barnett has made significant changes since taking over from Woodford, similar to those that he’s made in Invesco Perpetual High Income and Income.
The smaller size of the trust has meant that the manager’s been able to be more aggressive in his portfolio turnover, however.
He also hasn’t had to contend with outflows, thanks to Edinburgh’s closed-ended structure.
Edinburgh IT is now less concentrated, with the top 10 accounting for 44.1 per cent compared to 61.5 per cent at the end of December 2013.
Glaxo and Astra have come down from around 9 per cent to 4.3 and 4.9 per cent of the portfolio, respectively, with BT’s weighting also slashed.
Rolls Royce is the only stock that’s a new entrant into the top 10.
The table below shows how the top 10s of the funds have changed since the end of December 2013.
Source: FE Analytics
Barnett also has made significant changes further down the portfolio, upping the trust’s FTSE 250 exposure to over 20 per cent.
