Barnett adds that equity market valuations now anticipate an upgrade in forecasts to corporate earnings and as a result, the strong performance of equity markets in 2013 is unlikely to be repeated this year.
Outflow concerns
Barnett’s income funds have had relatively light exposure to the insurers and food retailers, which have seen negative news flow on the back of the annuities announcement in the budget and fears of pricing pressure respectively. This has helped relative performance over the past month and the Invesco Perpetual Income fund is ahead of the FTSE All Share over the past month, despite concerns over the impact of outflows as a result of Neil Woodford’s departure.
The stock market’s retrenchment in March hit some of the fund’s major holdings in BT Group, Capita and AstraZeneca. However, Barnett continues to be positive on the outlook for AstraZeneca, with a number of drugs seeing positive clinical trials.
Barnett also remains positive on the tobacco sector, saying data from Australia showed that there had been minimal effect on consumption from the first year of plain packaging. Also, there are signs that the declining volumes in Western Europe are levelling out.
Sector switch
On the utilities, share prices in SSE and Centrica have seen some recovery after news from Ofgem of a full competition industry review. The referral by Ofgem of the industry to the Competition Commission noted that there had been no meaningful evidence of wrong doing or excessive returns, but just that some elements of the market are not functioning fully. Barnett remains investing, expecting a positive result from the Ofgem review.
Two of the fund’s holdings in unquoted companies, Circassia and Xeros, floated on the UK stock market last month, and have seen strong returns since. Barnett expects further announcements of IPOs and trade sales as the next two to three years unfold and the climate for smaller cap companies remains buoyant.
Barnett is still coping with outflows from the funds as groups such as St James’s Place switch allegiance. Nevertheless, the Income fund is still £8.3bn and the High Income fund £13.5bn. The fund’s are third and fourth quartile over one year in the UK All Companies sector – the move from the UK equity income sector has seen the fund’s slide down the rankings, though both remain first quartile over three years.
