16th October 2013
Hargreaves Lansdown is telling investors they do not need to sell out of the Invesco Perpetual High Income and Income funds despite Neil Woodford’s planned departure in April.
It has also issued a detailed Q&A about Neil Woodford, the implications for the funds he was involved in and the Edinburgh Investment Trust, his track record and the merits of his successor Mark Barnett.
Hargreaves Lansdown senior investment manager Adrian Lowcock “Neil Woodford has delivered an impressive return for investors. Over the 25 years he has been managing Invesco Perpetual High Income fund he has delivered a total return of 2,224%. I believe he will continue to work hard at achieving strong performance for investors until he departs in April and I don’t believe investors should sell the funds on the news. Woodford is currently responsible for 41% of assets in the IMA UK Equity Income sector.
“Mark Barnett, the manager taking over, has been at Invesco Perpetual for 17 years and has been running the Invesco Perpetual UK Strategic Income fund since January 2006. Since then he has delivered a strong performance, beating his mentor Woodford. The Invesco Perpetual UK Strategic Income fund returned 49.9% since January 2006 compared to Woodford’s Invesco Perpetual Income fund returning 35.3%. However he will be taking on a much larger fund in 2014.”
What is happening?
After 25 years, Neil Woodford, Head of UK Equities, will be leaving Invesco Perpetual on 29 April 2014. He is planning to set up his own fund management business although no specific details of this are yet known.
Neil Woodford will remain at Invesco Perpetual for a transition period of six months prior to his departure.
Which funds are affected?
· Invesco Perpetual High Income
· Invesco Perpetual Income
· Invesco Perpetual UK Equity Pension
· Edinburgh Investment Trust
The UK equity components of:
· Invesco Perpetual Monthly Income Plus Fund
· Invesco Perpetual Distribution Fund
Who will take over the management of these funds/ components?
Mark Barnett will be appointed as manager of the Invesco Perpetual High Income fund and the Invesco Perpetual Income fund and take over full operations from 29 April 2014. Mark Barnett will also succeed Neil Woodford as Head of UK Equities.
With immediate effect, the equity components of the Invesco Perpetual Monthly Income Plus fund and Invesco Perpetual Distribution fund will be managed by Ciaran Mallon, alongside the existing fixed income managers Paul Causer and Paul Read.
What should investors do?
Invesco Perpetual High Income, Invesco Perpetual Income and Invesco Perpetual UK Equity Pension will continue to be managed by Neil Woodford until April 2014. We do not believe investors should rush to a decision – in our view Neil Woodford is an exceptional manager and he will continue to work hard at achieving strong performance for investors until he departs.
A change of manager, particularly one so high profile and successful, will be a hard act to follow. For this reason we are removing these three funds plus the Invesco Perpetual Monthly Income Plus and Invesco Perpetual Distribution from the Wealth 150 until we have had the opportunity to meet with the managers and assess their prospective performance.
What do I do if I am making regular savings into one of his funds?
We have no concerns if investors wish to continue saving regularly into these funds. However it is easy to make changes to a regular savings plan, if an investor does want to change future payments.
Invesco Perpetual Income Fund
· Managed from October 1990
· Delivered investors a total return of 1,723% to end of September 2013
· Fund size is £10.56bn
· £1,000 invested in October 1990 would have returned £17,686 compared to £1,000 in the FTSE All Share would have returned £7,798 by the end of September 2013
Invesco Perpetual High Income Fund
· Managed from 6th February 1988
· Delivered investors a total return of 2,224% to end of September 2013.
· Fund size is £13.89bn
· £1,000 invested in October 1990 would have returned £23,265 compared to £1,000 in the FTSE All Share would have returned £9,714 to end of September 2013
Edinburgh Investment Trust
The Edinburgh Investment Trust is also managed by Neil Woodford and having been traded on a premium the shares fell on back of the announcement. Today the trust is down 4.6% having been down 4.9% yesterday. The board of the trust may ask Neil Woodford to continue to be manager following his departure from Invesco Perpetual. We are not convinced Woodford would want to continue running the fund.
Neil Woodford’s career highlights
Investing in tobacco – In the 1990s Neil Woodford took a contrarian view on the future of the tobacco industry. At the time, tobacco companies were facing huge lawsuits which threatened to bankrupt the industry. British American Tobacco PLC and Imperial Tobacco Group PLC have returned 1,125% and 581% respectively since January 1999. The FTSE All Share returned 110% over the same period.
TMT – Whilst Woodford was investing in tobacco he shunned the shunned TMT boom. As a result he lagged the market by 19% in 1999, a significant margin. At the time many commentators and investors thought he had lost the plot. Time proved him right.
Not owning banks in 2007/08 – Woodford avoided banks in the run up to the financial crisis, not because he saw what was coming but more fundamental reason, they lacked transparency in their accounts and he wouldn’t invest in something he couldn’t understand.
Pharmaceuticals 2010 – Woodford called it the best investment opportunity of the next decade and likened it to Tobacco companies in the 1990’s. Other investors were ignoring the fundamentals of a business, instead focusing on the “Patent Cliff”. The jury is still out on this decision.
Alternative UK Equity Income funds
Artemis Income – Adrian Frost and Adrian Gosden continues to look for companies with healthy cash flows where the long-term potential for dividend growth is strong. The £5.9bn fund has returned 69.3% over five years, in-line with Woodford’s two portfolios.
Rathbone Income – At the fund’s core are a number of stable, high-quality businesses which could provide resilience throughout a market cycle. This has been combined with a more economically-sensitive element of the portfolio, including higher risk smaller and medium-sized companies. We favour this approach as well as manager Carl Stick’s focus on growing both income and capital over the long term. In the last five years it has edged out Woodford’s offerings, returning 71.4%.
Mark Barnett has been in the investment industry for 21 years, with the last 17 of those years at Invesco Perpetual. He took over the Invesco Perpetual UK Strategic Income fund in January 2006 (He has also managed Keystone IT since 2003 and Perpetual Income and Growth IT since 1999). Barnett sees himself as an investor, not a trader. He wants to buy long-term investment opportunities and then be patient, as he believes ‘value will out’. He wants to benefit from the long-term growth in cash flows and from there the associated dividend growth. Fundamentally, he believes the best long-term investments are companies able to grow their dividends. He expects to lose money when markets fall sharply and to underperform is sharply rising, liquidity-driven markets.
Barnett has beaten Woodford since he took over management of the Invesco Perpetual UK Strategic Income fund, returning 49.9% since January 2006 compared to Woodfords Invesco Perpetual Income fund returning 35.3%. Barnett’s fund is smaller at £285m compared to £10.5bn. It has a greater focus on smaller companies and is more actively managed. He has less in healthcare than Woodford and has larger exposure to financials.