Edinburgh Investment Trust has slipped onto a discount since Woodford announced his resignation from Invesco last October, and is currently trading at 4.2 per cent below net asset value [NAV]. However, Tuite Dalton says that Barnett’s superior record makes his trust a better buy.
“To borrow one of the better ‘Bushisms’: don’t mis-underestimate Mark Barnett (pictured), manager of Perpetual Income Growth and Keystone, and who in our view is ready and able to fill the shoes of one Neil Woodford,” he said.
Reviewing the newly renamed AIC UK Equity Income sector, the analyst points out that one of the key issues for investors picking a fund at the current moment is what length of track record to look at.
Even five-year numbers only include a sustained bull run since the 2009 market bottom, meaning that investors need to look at seven-year numbers to judge how a fund performs in bear markets too.
“We turn to the seven-year numbers, a period which includes both bull and bear markets, to single out those managers with true all-terrain capability,” Tuite Dalton said.
The analyst points out that Barnett has outperformed his senior colleague over a seven-year period, making 82.6 per cent in NAV terms compared with Edinburgh’s 58.7 per cent.
In share price terms, FE Analytics shows the respective returns are 97.25 per cent and 72.97 per cent.
Performance of trusts vs sector and index over 7yrs
Source: FE Analytics
Perpetual Income Growth has also produced superior returns over six months, one year, three years and five years.
“There has been a lot of talk about Neil Woodford. Maybe too much talk. But what about Mark Barnett?” Tuite Dalton said.
“Perpetual Income and Growth has delivered superior returns to Edinburgh Investment Trust over 6 months and one, three and five years, and, most importantly, over the critical seven-year period. And we are not simply talking a couple of per cent here and there.”
Tuite Dalton says that the trust is the standout performer for a decent dividend income, consistency and long-term returns in the sector.
“The bottom-up approach results in mid cap bias: Mark’s bottom-up strategy has historically led him to run a portfolio with more of a mid cap bias than the higher profile Woodford and this bias was especially beneficial to performance in 2013,” he said.
“Barnett has been running Perpetual Income and Growth since 1999, but being of the tender age of 43, he still has time on his side,” he added.
“Also worth mentioning is that Barnett has significant resources supporting him both in Henley and globally,” the analyst continued.
“Who knows how Woodford will fare in a new, untested environment? Some may take the view that Barnett now has a lot on his plate, but one should not overlook the support team behind him, as well as his tried and tested methodology.”
Tuite Dalton favours Perpetual Income and Growth over Barnett’s other closed-ended fund, Keystone, which he says is hampered by unwieldy long-term debt.
This is despite the fact that Keystone, which Barnett has run since 2003, has outperformed both the other trusts over seven years, returning 100.04 per cent.
Performance of trust vs sector and index over 7yrs
Source: FE Analytics
Although the fund yields 2.85 per cent, it sits in the AIC Growth sector.
“As at the end of November the two funds had 44 per cent and 47 per cent respectively in FTSE 100 stocks, around a third in the FTSE 250, 13 per cent in overseas equities and 5 per cent in the FTSE Small Cap,” he said.
“By contrast, Edinburgh Investment Trust had 68 per cent in the FTSE 100, 18 per cent in overseas listeds, 13 per cent in the FTSE 250 and 2 per cent in smaller companies.”
Only Schroder UK Mid Cap has made more money than Keystone in its sector over 10 years, and the trust is also the top performer in the sector over seven.
Source: FE Analytics
However, Tuite Dalton points out that the latter fund’s dominant position in the sector is helped by the fact that prior to February 2011 it was called Schroder UK Mid and Small and was around 50 per cent invested in the faster-growing smaller companies market.
Woodford’s decision to leave Invesco has left the board of Edinburgh facing a decision over what to do with the trust.
The board members could remain with Invesco and a new manager they propose, which could well end up being Barnett. The latter has already taken over Woodford’s open-ended funds.
Alternatively, they could follow Woodford to his new venture if he wishes to continue.
The board has not yet declared what it intends to do, but in its quarterly report published yesterday it said it has held discussions with Invesco.
“The board is carefully reviewing with the manager proposed future arrangements for the management of the company and will make a further announcement in due course,” it said.
