Performance of funds vs sector and index over 10yrs
| Name | 1yr returns (%) |
3yr returns (%) | 5yr returns (%) | 10yr returns (%) |
|---|---|---|---|---|
| Invesco Perp UK Strategic Income | 25.31 | 51.68 | 64.59 | 222.48 |
| Invesco Perp High Income | 17.09 | 42.55 | 51.73 | 259.21 |
| Invesco Perp Income | 16.72 | 39.83 | 50.38 | 256.48 |
| FTSE All Share |
15.13 | 30.02 | 44.68 | 165.85 |
| IMA UK Equity Income | 17.01 | 33.78 | 41.77 | 152.46 |
Source: FE Analytics
While Neil Woodford’s two multi-billion pound portfolios have been marginally less volatile than Invesco Perpetual UK Strategic Income, Barnett’s fund still comes out on top on a risk-adjusted return basis over all three time periods.
Our data shows that Invesco Perpetual UK Strategic Income has a Sharpe ratio of 0.39, compared with 0.29 from Invesco Perpetual High Income and 0.28 from Invesco Perpetual Income.
Performance of funds vs sector and index over 5yrs
Source: FE Analytics
Barnett (pictured) has run the fund since January 2006, but in spite of his strong and consistent record, he has been unable to attract the same level of inflows as Woodford’s two income funds, which have combined assets under management (AUM) of more than £20bn.
Miton’s James Sullivan, who heads up the sector-leading CF Miton Strategic Portfolio, says this is one of the principal reasons why he prefers the UK Strategic Income fund to Woodford’s offerings, and includes it in his top-10 holdings.
"People seem to forget that Mark Barnett’s record stands up against just about everyone," he said. "His fund doesn’t have the Woodford brand and so hasn’t seen the influx of retail money. Money attracts money in this industry."
"Flexibility is definitely an issue, and may go some way in explaining why he’s outperformed."
"It’s smaller and more nimble, though the mandate is very similar, and the three funds have very similar sector weightings."
"I’d also point out that there is a yield differential between the two funds, which means Barnett may not have to concentrate quite so much on income and can instead take on a bit more growth."
According to FE data, UK Strategic Income is currently yielding 3.12 per cent. Invesco Perpetual Income and High Income are yielding 3.4 and 3.35 per cent, respectively.
All three Invesco funds are significantly overweight healthcare and consumer products. Woodford’s funds are more concentrated, with around 56 per cent invested in the top-10 companies, compared with 46 per cent for Barnett.
Invesco Perpetual UK Strategic Income is invested predominantly in large caps, but it does include FTSE 250 company Thomas Cook Group in its top-10, making up 3.4 per cent of AUM. Woodford holds no mid cap exposure in his top-10.
Barnett holds more in BT Group than Woodford, but significantly less in healthcare giants AstraZeneca and GlaxoSmithKline. Only one company has a weighting of more than 5 per cent in Barnett’s fund. By contrast, five of Woodford’s positions in the High Income fund have more than a 5 per cent weighting.
A recent FE Trustnet study highlighted the high degree of dividend risk within concentrated portfolios such as Woodford’s – a danger that is muted in Barnett’s more diversified fund.
"Another reason why we prefer UK Strategic Income comes down to accessibility," continued Sullivan (pictured). "We can go and talk to Mark over a coffee to hear about his macro-economic views pretty much whenever we want, but we simply can’t get access to Neil."Mark Dampier, head of research at Hargreaves Lansdown, agrees that the smaller size of Barnett’s fund would give him an edge if Invesco’s macro outlook was to change and the group became less defensive.
"It has the same team as Income and High Income, but it’s that bit smaller, which means it has greater flexibility," he said.
"I’d almost always defend Neil Woodford because he’s such a good manager, but one thing I would say is that even if he wanted to go into mid caps, he couldn’t."
"Yes, he doesn’t want to be there at the moment and he’s explained why, but if things change he’s stuck. Barnett has that little bit of extra flexibility to move down the cap scale. It doesn’t take that much exposure to make a big difference."
When asked if Barnett gets the credit he deserves, Dampier said:
"I think to some extent, you could say the same thing about everyone at the company. When you say Invesco, Woodford automatically springs to mind."
"Neil is the first person to say that there is plenty of talent at Invesco, and I’m sure he’d point to Mark as one of the best."
"I’ve always thought of him as Woodford’s successor, though that’s purely an opinion – I have no idea what plans they have in the future."
Though Dampier rates Invesco Perpetual UK Strategic Income very highly, he says it has not made it on to the Wealth 150 list because it is too similar to Invesco Perpetual High Income.
However, the FE Research team has included it in the FE Select 100 alongside Woodford’s Income portfolio.
Analyst Charles Younes says that the manager is to some extent constrained by the views of Invesco’s equity team, but like Dampier, points out that his high level of flexibility is a very attractive trait.
"The manager is part of the Invesco UK equity team, led by Woodford, and unsurprisingly the fund is run with a similar approach to Woodford’s flagship Income and High Income portfolios," he said.
"Barnett has to take into account the strategic investment views defined by the equity team when selecting stocks."
"At the moment, he believes that economic growth will be anaemic in the coming years and is therefore likely to maintain his preference for large companies that are less reliant on an economic recovery."
"However, if a recovery occurs, the manager may increase his allocation to a number of medium-sized firms currently on his watch-list to give the portfolio more aggressive characteristics."
Younes points out that Martin Walker’s Invesco Perpetual UK Aggressive portfolio has already switched out of defensives and into cyclicals, showing that managers at Invesco do have the flexibility to conflict with Woodford’s outlook.
Invesco Perpetual Income, High Income and UK Strategic Income require a minimum investment of £500.
All three have five FE Crowns and appear in all three of the AFI panel’s recommended portfolios. Barnett’s fund has an ongoing charges fee (OCF) of 1.2 per cent for anyone investing directly, but this rises to around 1.7 per cent for anyone going through a platform.
Barnett also runs the five-crown rated Keystone IT, which he has headed up since January 2003.