Shaun McDade, director and chief investment strategist at the firm, says the team made the move when Woodford announced his decision in October last year.
However, the firm had become concerned about the valuations on the portfolio before the manager announced his departure, he explains.
“Woodford leaving was the trigger point but we had been looking at getting out of it on value grounds,” he said.
“It was the trigger point but not the sole reason for our exit.”
The Invesco Perpetual High Income and Income funds had swollen to a massive £20bn in size overall, though the funds have suffered outflows since the manager announced he would be leaving the firm after more than 25 years.
Woodford owns large chunks of some of the UK’s biggest companies, including BAE Systems, British American Tobacco and GlaxoSmithKline.
Some of his defensive stocks had reached lofty valuations during the years following the economic crisis.
McDade says he would consider investing in Woodford’s soon to be launched income fund, which will follow a similar strategy to his current Invesco products, but for the time being is taking a different direction and has opted to invest in GVO UK Focus.
He says the fund is not “like-for-like” so investor should not expect the same management style or performance as Woodford’s former portfolios; however, he likes that the management team is “doing something different”.
The four crown-rated fund is just a fraction of the Invesco funds’ size, with just £176.2m in assets under management. However, this gives it much more flexibility to invest in smaller and more niche companies.
The managers explained their approach in an interview with FE Trustnet last year.
“It marries private equity investing with traditional equity analysis,” McDade said.
The Dublin-domiciled fund, headed up by Adam Steiner and Jamie Seaton, has blazed ahead of the IMA UK All Companies sector and FTSE All Share over the short-, medium- and long-term.
The fund has nearly doubled the returns of the sector and index over the last five years, bringing in 233.81 per cent, according to FE Analytics.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
However, the fund pays out just a fraction of the income of the Invesco funds, distributing an semi-annual dividend of 1.2 per cent.
GVO UK Focus is a highly concentrated portfolio, investing in a maximum of 35 UK companies.
The managers take a value-based approach, looking for cheap companies they expect to grow over the long-term.
As McDade highlighted, the fund uses private equity valuation techniques to determine whether companies are cheap.
The fund does share some of Woodford’s top-holdings, such as GlaxoSmithKline. It also holds FTSE 100 asset manager Aberdeen Asset Management, UK aerospace giant Rolls Royce and biopharmaceutical company Shire in its top-10.
Nearly 40 per cent of the portfolio is invested in the top-five stocks alone.
The fund was previously called the SVG UK Focus fund, until SVG Investment Managers rebranded to GVO Investment Management in November last year.
The fund requires a minimum investment of £1,000 and has an annual management charge (AMC) of 1.25 per cent.
Other themes that populate MitonOptimal’s portfolios are a warming attitude towards fixed income and emerging markets.
“We’re feeling more constructive about fixed income, having been structurally bearish for some time,” McDade said.
“The core fixed income markets aren’t as expensive as they were. There’s more juice in the market than there was.”
However, he says investors still need to be careful about fixed income. McDade prefers to access the asset class through credit, particularly absolute return strategies.
He says MitonOptimal's favoured fund is Muzinich Global Tactical Credit. The fund is another Ireland-registered unit trust and it sits in the FCA Offshore Recognised Absolute Return sector.
The fund has outperformed the sector over its short history, returning 2.03 per cent since launch in November last year. The sector lost 1.11 per cent over that period.
Performance of fund vs sector since launch
Source: FE Analytics
“They are smart managers, risk aware and have plenty of flexibility in where than can invest and where they want to invest,” McDade said.
McDade says the managers at MitonOptimal are also thinking about dipping their toes back into emerging markets, though they have not quite taken the plunge yet.
“We’re looking at emerging markets, though we’re not ready to bite the bullet yet,” he said.
However, he says valuations are so low in the sector that it is becoming more and more tempting to increase exposure to it, and that the team will look for quality companies and income generation rather than an all-out equity fund.
He adds that as there was a rush of money out of the fledgling emerging markets last year, it caused some developed markets to become overvalued.
“There’s no doubt the movement of capital from emerging markets to developed markets has made some markets more expensive,” he said.
McDade says he still likes Europe, where he believes there are a lot of opportunities at the stock level.
