Invesco Perpetual head of UK equities Mark Barnett has handed a second mandate to colleague James Goldstone, the £233.2m Keystone investment trust, but what should investors do? 
The investment trust launched in 1954, with FE Alpha Manager Barnett (pictured) having taken over management of the closed-end fund from Merrill Lynch IM in 2003.
The fund, which aims to provide shareholders with long-term capital growth through investment mainly in UK companies, has performed strongly under the manager.
Since Barnett was hired to run Keystone in 2003, the trust returned 472.23 per cent to 20 March 2017. In comparison, the average IT UK All Companies sector fund has returned 305.87 per cent and the benchmark FTSE All Share Total Return index is up by 251.55 per cent.
Performance of trust vs sector & index since 2003
Source: FE Analytics
However, last year proved a tougher environment for the fund manager. The closed-end fund lost 5.23 per cent over the course of 2016 amid a challenging year marked by the Brexit result and a rotation from growth to value.
Its return was higher than the 3.81 per cent gain posted by its average peer but far below the 16.75 per cent total return of the FTSE All Share.
Yet, while performance against the index fell away last year, sentiment towards Barnett and his successor remains positive.
In November, Barnett handed over management of the Invesco Perpetual Select UK Equity investment trust to Goldstone, who is well-regarded by the boards of both trusts.
Beatrice Hollond, chairman of Keystone, said: “14 years ago the board took the decision to appoint a talented young fund manager called Mark Barnett.
“Mark has produced outstanding returns for shareholders and the board would like to take this opportunity to thank Mark for many achievements and for producing superior long-term returns for shareholders.”
Hollond added: “Over the last few years Mark’s responsibilities have grown significantly and the board believes that the time is now right for him to pass the baton to one of the rising stars of his team.
“The board has been highly impressed by James Goldstone and is confident that he is the right investor to take over management of Keystone from Mark.”
However, with Keystone currently trading at a discount of 11.53 per cent (as of 20 March), according to data from Winterflood Investment Trusts, some investors may be left wondering whether to remain invested.
Keystone IT discount/premium over 5yrs
Source: FE Analytics
Alex Paget, research analyst at Kepler Partners, says investors do not need to rush into any decisions on whether to reconsider their investments in the trust.
He said: “James Goldstone is a young and hungry manager who has already built up a good track record and was hand-picked to be Mark Barnett’s successor on IP Select UK Equity – so clearly has his boss’ backing.
“He also uses the same investment approach as Barnett, with a clear focus on finding high quality companies trading on valuations he deems attractive.
“The only real difference in their respective approaches is their interpretation of the macro as, although James isn’t a raging bull, he is more positive in his view of the world believing that many more cyclical UK stocks are priced for a very, very poor outlook.
“As such, he has built up a relatively significant position in UK banks, bought certain mining companies and added certain domestic cyclicals to his new IP Select UK Equity trust.”
He added: “So, I would expect him to do the same on Keystone IT, which is something shareholders in the trust will need to be aware of.
“However, this approach has served investors in his Invesco UK Equity Pension fund well since he took charge in May 2014.”
Jason Hollands, managing director at Tilney Group, says the move by Barnett had not come as a great surprise considering Barnett’s other commitments.
He said: “He is sitting on top of a quite a number of mandates, it’s not surprising that some of those are passed on.
“That would only have happened with the full dialogue with the board of Keystone. The board will have obviously considered the proposed management arrangements and agreed.”
Kepler’s Paget added: “It is worth bearing in mind that while Keystone has been a top-performer, Mark Barnett has had a lot on his plate since the departure of Neil Woodford [from Invesco Perpetual].
“Of course, only time will tell and he clearly has a tough job taking over from such a high-profile manager, but James’ appointment could breathe a new lease of life into the trust.”
Noting the underperformance of the trust in 2016, Tilney’s Hollands says many active managers had a “difficult 2016” following the rotation out of small- and mid-sized UK companies to larger stocks.
He said: “Mark Barnetts’s investment style is naturally very similar to Woodford: they worked closely together for a number of years. Both managers focus on high quality companies that got caught out by the reflation trade that came at the end of the year.”
Goldstone will take over management of Keystone from April, at which point the trust has also pledged to reduce management fees. As at 31 August 2016, the fund had an ongoing charge fee (OCF) of 0.69 per cent.
From 1 April, the management fee due to Invesco will fall from 0.6 per cent to 0.45 per cent of the fund’s market cap. A performance fee if the NAV total return exceeds the FTSE All Share by 1.25 per cent over a rolling three-year period remains in place.