11th February 2014
With news that Neil Woodford is likely to launch funds in the UK equity income space, Charles Stanley Direct pension and investments analyst Rob Morgan assesses what this may mean for the existing Invesco Perpetual funds. Among other things, Morgan warns investors about the possibility of scare mongering and warns about stampede for the exit given the nature of the stocks involved in the Invesco Perpetual income funds i.e. blue chip, high yielding equities. We print the note below.
Since Neil Woodford announced he was leaving Invesco Perpetual speculation has been rife over what his new venture would be. Some commentators thought he would remain in the UK equity income space while other thought a move to smaller companies or private equity was more likely. It seems the former, at least for now, were correct. It has now been reported that his new fund, which launches in May, will replicate the Invesco Perpetual Income and High Income funds that he currently runs.
The new fund will be under the manager’s eponymous firm Woodford Investment Management, with Oakley Capital providing the necessary infrastructure he needs to run retail investments. Mr Woodford is likely to run a three-week offer period for the fund before it launches fully.
So far this is as much as we know, but already it has important implications for investors. Many of those who have backed Mr Woodford for years will want to follow him to his new outfit, and this could present challenges to Invesco Perpetual and the new manager of the Income and High Income funds Mark Barnett. Should a large number of investors move their money out it will force Mr Barnett into selling significant quantities of stock, and given the size of the funds it could be difficult to offload holdings at attractive prices – especially in regard to smaller companies, which do form a minor but significant element of the portfolios.
This has long been a risk of the Invesco Perpetual Income and High Income funds, and one reason we have favoured Mark Barnett’s Invesco Perpetual UK Strategic Income instead, which is one of our Foundation Fundlist of preferred funds across the major sectors. Indeed, Mr Barnett has outperformed Mr Woodford’s funds over the past few years. However, we also believe Mr Barnett is capable of doing a good job in terms of managing outflows. He revealed in a recent interview that he had a plan regarding managing redemptions and that he would use it as an opportunity to reshape the portfolio to his liking.
There will likely be enormous press coverage about Neil Woodford’s new venture – and possibly scaremongering over what could be a large amount of money leaving Invesco Perpetual Income and High Income funds. However, with portfolios of primarily blue chip high yielding equities, for which many investors have an appetite currently, this should still be a relatively orderly transition to a more than capable fund manager. Our view remains that Mr Barnett’s patient long-term approach should continue to benefit investors across all his funds – so think carefully about who you want to manage your investment rather than stampede for the exit.