Neil Woodford’s Invesco Perpetual successor Mark Barnett takes on Edinburgh Investment Trust

28th January 2014

Edinburgh Investment Trust has appointed Mark Barnett, the fund manager set to take on Neil Woodford’s mantle at Invesco Perpetual as the trust’s lead manager writes Philip Scott.

With Barnett in the process of taking over Woodford’s two giant mutual funds, investment advisers say he is the logical choice to replace Woodford on the investment trust as well.

For the past five years, Neil Woodford, the manager of the hugely popular £9.5bn Invesco Perpetual Income and £13.7bn High Incomes fund has also been responsible for the £1.1bn trust.

Since Woodford announced last October that he would be leaving Invesco Perpetual there has been speculation over whether or not Barnett, who will takeover the two flagship income funds, would also take on the Edinburgh trust.

As an investment trust, it is an independent company in its own right, managed by a board responsible for the hiring and firing of its management.

In statement issued to the London Stock Exchange today, the board confirmed that after “careful consideration” it had appointed Barnett as the new manager.

Jim Pettigrew, chairman of the trust said: “Mark shares the same active, value-driven investment approach and long-term focus as Neil Woodford and comes to us with an excellent track record built up over many years of managing money. He has worked alongside Neil for 17 years as part of the UK equities team at Invesco Perpetual, where he will take over as head of UK equities when Neil leaves.”

The board has also announced that it was cutting the trust’s annual fee from 0.6% to 0.55%, and that the performance charge has been scrapped.

Woodford, who is widely regarded as the UK’s top fund manager, shocked investors last year when he announced he was leaving Invesco Perpetual after 25 years to join forces with Oakley Capital Management.

At the same time Barnett, who had been a member of the group’s UK equities team for 17 years and manager of its UK Strategic Income fund was announced as Woodford’s successor as head of UK equities at the group.

Woodford  is set to leave Invesco Perpetual in April and start at Oakley Capital in May, where according to a statement from the group, it will “provide the infrastructure to allow Neil to manage retail and institutional clients’ money immediately after his employment with Invesco terminates”.

Performance

Barnett is also manager of the Keystone Investment Trust, the Perpetual Income & Growth Investment Trust and the Select Trust UK Equity Portfolio.

He has form as a fund manager. Over the past three years, his UK Strategic Income portfolio has more than comfortably beaten his peer group average of 26% after achieving a return of 52%. He has even outpaced Woodford’s 46% return for his High Income fund over the period.

In addition over five years to 31 December 2013, Barnett’s Perpetual Income and Growth trust has returned 130.7% compared to Woodford returning 135.8%, on the Edinburgh Investment Trust. In comparison the FTSE All Share has returned 95.16% over the same period.

Expert reactions

However despite his track record, Barnett does not yet have experience in running huge sums of money as Darius McDermott, managing director of fund broker, Chelsea Financial Services notes.

McDermott points out that Barnett is set to inherit more than £20bn of assets from Woodford, while he used to running a fraction of that at circa £1.5bn.

McDermott says: “He is the natural successor for the Edinburgh trust and we think Mark is a very good fund manager but running such vast sums of money is a huge challenge and only time will tell.”

Patrick Connolly, certified financial planner, Chase de Vere concurs. He says: “Appointing Mark as manager of the Edinburgh Trust is a logical and sensible choice. It does not come as a great surprise. We are supporters of Mark Barnett and we continue to hold the Invesco Perpetual Income portfolios.

“However when he takes over, we shall have to see how he copes with managing much larger sums of money and under a far greater spotlight.”

Adrian Lowcock, senior investment manager at Hargreaves Lansdown says:  “Mark Barnett has a similar long term value driven investment style to Neil Woodford, but he is likely to manage the Edinburgh Investment Trust in a different manner. He is less likely to hold big positions in companies within the fund and is less inclined than Woodford  to make big calls on sectors, such as pharmaceuticals and tobacco. In addition Mark Barnett is likely to run a more concentrated portfolio holding fewer companies than his predecessor. For the time being we think investors should stick with the new manager as he is capable and has a proven track record.”

In a note, discussing the implications of the new lower fee, Stephen Peters of Charles Stanley says: “The annual management charge (AMC) is to be 0.55% of the trust’s market capitalisation going forward, with a £7.5m reduction in the accrued performance fee for the 2013/14 company year to compensate for future transition costs. The management fee is going to be paid on the trust’s market capitalisation (number of shares multiplied by share price) rather than its net asset value.

“This means Invesco Perpetual, for whom Mark Barnett works, is financially incentivised to act to ensure the trust does not trade at a discount to net asset value in the future. The fee cut immediately puts pressure on the board of Perpetual Income and Growth (PLI), also run by Mark Barnett. This trust charges investors 0.75% of assets under management per year, plus a fee contingent on outperformance of the FTSE All Share index. It would not be surprising for the board of PLI to announce a change in its fee structure in response to this announcement.”

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