Invesco fund downgraded due to issues echoing Woodford

US fund giant hits back by pointing at market cap of holdings in Barnett’s portfolio


Invesco High Income has been downgraded by Morningstar thanks to issues that mirror those seen in Woodford Equity Income ahead of its suspension.

The fund now has a neutral rating.

Morningstar analyst Peter Brunt raised concerns about Barnett’s overweights in small and micro-cap stocks despite the fact “his skill-set lies more in investing in larger and midsize companies”. While the fund’s contrarian take on Brexit had been a headwind, this did not explain the extent of underperformance over a prolonged period, Brunt said.

The shift down the market-cap spectrum echoes Woodford Equity Income, which had 71.49% allocated to small and micro caps ahead of its suspension this year, despite launching in 2014 with 72.53% in large-caps.

Invesco argues market cap within portfolio is reasonable

Invesco responded that the strategy of Barnett’s funds has not changed.

“More than 80% of the Invesco UK Equity Income Funds is invested in companies with a market cap of more than £500m and over two-thirds is invested in companies with a market cap of over £1bn,” a spokesperson said.

“Our exposure to selective UK domestic oriented companies supports an attractive outlook for investors, and clarity on the UK’s future relationship with the EU is likely to prove a positive catalyst for companies that have de-rated under sustained political uncertainty.”

But Brunt said exposure to small and microcap stocks had started to shift in 2017. It accounted for 30% of the portfolio compared to 8% in the benchmark by September 2019.

“Such a shift in market-cap profile for a strategy with sizable assets has made the overall liquidity profile less attractive and has resulted in significant ownership of many smaller names,” he said.

“While the group has been able to meet redemptions so far, Barnett’s continued intent on investing in smaller names gives us cause for concern.”

Barnett’s “considerable workload” was also highlighted in the fund downgrade. As head of UK equities he has a number of direct reports while also managing £11bn across a number of vehicles and segregated mandates.

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