FE Alpha Manager Mark Barnett now feels comfortable that the five crown-rated £12.5bn Invesco Perpetual High Income and £6.7bn Income funds are very much his, as he has used the past few months since he took over from Neil Woodford to put his own stamp on the two portfolios. Last year’s announcement that star manager Woodford would be leaving Invesco Perpetual after more than 25 years’ service to set up his own fund management company caused a huge stir in the industry.
Most commentators agreed Barnett was the logical choice to replace Woodford as manager of the multi-billion funds and take over the role of head of UK equities at the group, due to his strong track record as manager of the five crown-rated Invesco Perpetual UK Strategic Income fund and his various investment trusts. But many questioned whether he would be able to manoeuvre the funds to his liking.
However, seven months into his tenure, the FE Alpha Manager says he is comfortable with how the portfolios now look and feel.
“I think the transition has gone well,” Barnett (pictured) said.
“There have been a number of areas I have had to do a lot of work on, such as analysing stocks which I didn’t know much about and meeting companies that I hadn’t seen before. Obviously, managing the team is a new experience but I think that has gone well so I’m confident about how the future will play out.”
The manager says that he is so confident about his two five-crown rated funds that he feels, except for the odd minor changes, he won’t be making huge alterations from this point onwards.
“You always want to tweak or change things around the edges, but I’m comfortable with the major parts.”
One of the major changes he has made is to make the portfolios less concentrated.
As Barnett told FE Trustnet earlier in the summer, while he still likes some of the biggest stocks he took on after Woodford, he wasn’t comfortable holding more than 6 per cent of total assets in just one company.
Using High Income as an example, when he took over the portfolio, healthcare giants AstraZeneca and GlaxoSmithKline were the largest holdings, making up 8.81 per cent and 8.72 per cent respectively. They now feature lower down the list and combined make up 9.98 per cent.
IP High Income’s top 10 holdings
Source: FE Analytics
“I’ve changed the weightings in the funds as I have reducing some of the top 10 holdings. The portfolios that I inherited were quite concentrated as the top 10 holdings were 55 per cent of the fund, now they are 45 per cent.”
“I’ve never held stocks that are more than 6 per cent of the fund I don’t want that to change. I have also introduced some new holdings into the portfolio.”
While very few questioned Barnett’s ability to outperform over the longer term, concerns were raised whether, given that he was running such a huge pool of money and was likely to face redemptions, he would be able to replicate Woodford’s stellar track record.
According to FE Analytics, Invesco Perpetual High Income returned 2,407.69 per cent when Woodford was in charge, beating the FTSE All Share by a substantial 1,418 percentage points in the process.
Performance of fund versus index between Feb 1988 and Mar 2014
Source: FE Analytics
While the manager has had to deal with outflows – FE data shows High Income’s AUM has shrunk by close to £1bn over the last seven months – and though it is still early days, Barnett has hit the ground running.
Our data shows since Barnett has been at the helm, the fund is up 3.25 per cent while the All Share and the IMA UK All Companies sector have posted losses.
Performance of fund versus sector and index since Mar 2014
Source: FE Analytics
“There is no doubt that performance since I have taken over has been good,” Barnett said.
“The changes I have made haven’t been disruptive and also some of the big weightings I have inherited have done well. The changes I have made I think are important as I have been able to put my own influence of the funds.”
While the manager says he is comfortable with his funds, reports from the Telegraph suggested that, as outflows have been so strong, the proportion of unlisted holdings in the fund had swelled to 8 per cent, creating potential risks for investors.
Invesco Perpetual is yet to confirm these figures and Barnett says he is happy with his current exposure of 5 per cent.
He also points out that one of his new hires since taking over as head of UK equities has been Fred Bouverat, who has been brought in to help him analyse that part of the market. Bouverat is a former Numis analyst who specialises in unquoted equities.
Like Woodford, Barnett likes to hold companies which commercialise university research such as IP Group and Allied Minds. These, in turn, help him find non-listed companies that operate in the same space; like his newest unquoted investment, Pure Tech which is based in the US.
The manager’s main change has been his decision to reduce his weighting in some of his largest holdings; however he is keen to stress that he is keeping the same themes as his predecessor – most notably healthcare and tobacco.
He likes the pharmaceutical giants because he believes they are going through a period of transition and will go through a purple patch over the next couple of years when they bring innovative science and drugs to the market.
The manager admits that while the tobacco sector faces headwinds in the developed world, the outlook for emerging markets is very positive.
Barnett has brought in a number of new holdings, however. He participated in the AA and Game Digital IPOs earlier this year, for instance, and both have delivered strong returns for him over recent months.
Performance of stocks versus index since June 2014
Source: FE Analytics
Invesco Perpetual High Income has a yield of 3.31 per cent and has a clean ongoing charges figure (OCF) of 0.92 per cent.