Woodford is handing over management of his giant Invesco Perpetual Income and Invesco Perpetual High Income funds to Barnett, as well as his role as head of UK equities. Barnett (pictured) says that he has always had full responsibility for stockpicking on his funds and that his style will not change now that his boss is leaving.
"All of the decisions made for the funds in the Henley office are down to the individual responsibility of the manager," he said. "This has always been the case, and we’ve been very successful in doing so."
"We’ve always had a collegiate process at Invesco, but it all comes down to the individual. There are overlaps between my [Invesco Perpetual UK Strategic Income] fund and Neil’s [Invesco Perpetual High Income] fund, but there are also a lot of stocks that I own that he doesn’t, and vice versa."
"We both hold Glaxo but the weightings are very different, and I could name half a dozen companies that I own that we could add to the funds."
Barnett’s £285m Invesco Perpetual UK Strategic Income fund has made 54.58 per cent over the past three years while Woodford’s £10.5bn Invesco Perpetual Income and £13.9bn Invesco Perpetual High Income funds have made just over 41 per cent, according to data from FE Analytics.
Performance of funds over 3yrs
Source: FE Analytics
Barnett will have to deal with a much larger pool of money on the new funds, which will inevitably restrict his investment universe and mean that he can get less joy from the mid cap area of the market he has exploited on the UK Strategic Income fund.
However, his comments suggest that he may increase the larger funds’ weighting to financials, one of the sector commitments that currently distinguishes him from Woodford.
Barnett has yet to set out a clear path for the future of Invesco Perpetual Income and High Income, and his existing fund could even merge with his newer ones.
When asked whether Strategic and High Income will remain different or be merged together, he said: "It’s not entirely clear yet, I’m not going to divulge that information at the moment."
"The handover period is six months, which gives us a decent amount of time. Things could certainly change over that period, but we won’t be saying anything at the moment."
The manager believes his style is scalable to a larger pot of money and says that he is well prepared for any redemptions that may occur.
"I’ve always been a long-term investor with a low turnover. I’ve never been one to trade for the short-term using arbitrage techniques."
"The decisions I make are long-term – I’m looking for exposure to companies with good cash flow and dividends. The best kinds of investments are the ones you never sell."
"When I do sell down companies, I always do it gradually in a similar way to Neil. I’m lucky enough to have sat alongside him for 17 years, so I have first-hand experience of how he has successfully run a very large fund. I’d argue that nobody has had better access to him than I have."
"As you can imagine, we’ve stress-tested the portfolio for liquidity, for a number of different scenarios," he added. "In terms of outflows, we have no idea what will happen, but we are ready for the possibilities."
Barnett hints that he is cautious on the outlook for the market and that investors are still better off in the defensive part.
"I think there is still some value in the [large cap defensive sector of the] market. These stocks have broadly been flat over the last six months after a great start to the year."
"The valuation discrepancy between the cyclical and defensive part of the market is actually lower now than it was 12 months ago, so I don’t have too many concerns there."
"I think there are still pockets of value around, and given what we think will transpire from the macro in the medium-term, we are confident that large, reliable dividend-paying industries will be a good place to be."
One of the less well-known features of Woodford’s investment style is his strong interest in small cap, sometimes unquoted, companies developing new technologies, particularly in the area of medicine.
Woodford has been a lifeline to many of these companies, and has been able to buy huge shares in them with a very small proportion of his funds. Barnett suggests that he will continue this activity.
"We do actually share some of the same unquoted names, though not to the same extent. I believe there is a lot of undervaluation in the unquoted and small cap market, particularly in those being born out of the universities."
"To be clear, these companies have a very small weighting in the funds, at around 5 per cent. The bulk of the returns is going to come from the large holdings. That’s where the realisations will come from."
Head of distribution Ian Trevors says that Invesco has a good track record with major handovers, and plans well in advance.
"We’ve always been very careful with succession planning at Invesco," he said. "Mark has been here for 17 years and it’s my 20th anniversary this year. We retain individuals at this company for a very long time."
"We’ve got a lot of people to help with the process. Martin Walker took over from Ed Burke, which was a major change. He’s doing an excellent job on UK Growth."
"Stephen Anness worked very closely with Neil and has taken his experience of running money with him into the global team."
"Neil has been very careful and thoughtful with who he has brought in. No one will be coming in, we’ve planned very well."
"If you look at the initial reaction, most understand that there’s no need to make an immediate decision as Neil will remain on the fund for six months. After then it’s up to people to look around the market place and make their decision."
"I personally don’t think there’s anyone with the credentials of Mark Barnett though. If you’re looking for someone to be responsible for £30bn, it’s got to be him."
"If we have to deal with redemptions, the best place for them to happen is in big funds. I think we’ll cope with it just fine."
While most people who invest with Neil Woodford do so through his open-ended funds, the manager has also built up a following on the Edinburgh Investment Trust.
The trust has lost 4.87 per cent since Woodford announced he would be leaving Invesco, and has gone from a premium on to a discount.
Performance of trust over 1month
Source: FE Analytics
This is despite the fact there is no clarity about what will happen with the management contract. The decision on who to offer it to rests with the board; Trevors suggests that Invesco is keen to retain it and even hints that Barnett could also take it on.
"We met with the directors of Edinburgh this week and talked to them, and since then they’ve put out a statement saying they are looking at their options."
"We are very happy to retain managers – Mark has significant experience in the field and is a more than credible candidate."
However, Barnett is already manager of three closed-ended funds, so it is difficult to see him retaining his responsibilities on all these portfolios as well as the open-ended funds.
The final picture is still far from clear.
