The £1.2bn closed-ended fund published its final year results in the midst of the fallout from the Woodford Equity Income suspension, which has cast a shadow over the former protege of Neil Woodford.
In total return terms, the investment trust rose 4.6% in the year to 31 March 2019 against the 6.4% delivered by the FTSE All Share. Its net asset value rose less than its share price at 2.9%.
Board will continue to back Barnett
Chairman Glen Suarez said that following a third year of underperformance the board has “stepped up its scrutiny” of Barnett’s approach, including “probing once again the nature of investment, risk management and challenge processes”.
But Suarez said the board would continue to back Barnett.
“We continue to believe that Mark’s approach, accompanied by appropriate Invesco and board support, oversight and challenge, is the right one to meet the company’s objectives,” he said.
“Mark’s approach to investment is based on fundamental research and he builds his portfolios based on the convictions that result from his research. As a result, the portfolio tends to be concentrated in a number of sectors and holdings. This approach has the potential to deliver significant outperformance over the medium to long-term, but a concentrated portfolio of this kind may also result in periods of underperformance, as has been the case in the past three years.”
Mark Barnett upbeat on UK equities
In his note to shareholders, Barnett gave an upbeat prognosis on the UK economy which he said, “continues to confound most forecasts by recording steady growth”.
But he said valuations in the UK market as a whole remain “polarised” between multi-national companies which command a high premium and the kind of domestically focused UK equities found in the portfolio which are valued significantly lower.
“The portfolio continues to offer a sustainable flow of diversified income, with stronger dividend cover and better growth prospects compared to the wider market,” he said.
“However, these qualities have been largely ignored by a market that has rewarded momentum over fundamentals, such that on a price-to-book basis the portfolio is significantly undervalued.
“This suggests that there is an opportunity for material revaluation in the portfolio from current levels.”
Barnett has been attempting to distance himself from Woodford, his former mentor at Invesco whose funds he took over in 2014, since the Woodford Equity Income fund was suspended last week.
Barnett and Woodford have a number of holdings in common and jointly remain the largest shareholders of both larger FTSE 250 holdings like Provident Financial and less liquid holdings like intellectual property business Allied Minds, where they collectively own 50% of the business.
But since taking over Woodford’s funds at Invesco Barnett has differentiated his large cap calls from Woodford, sticking with big tobacco stocks like British American Tobacco, and buying stakes in oil giants like BP.