Mark Barnett has significantly dented Invesco’s investment trust assets for a second time as the Perpetual Income & Growth board follows in the footsteps of the Edinburgh Investment Trust and yanks his mandate.
The board has sought expressions of interest from rival asset managers to take of the £621m worth of assets in the investment trust, which Barnett had managed since 1999.
Just last month, he officially handed over the reins of the Edinburgh Investment Trust to Majedie Asset Management CIO James de Uphaugh after being handed notice in December.
Collectively, net assets in the two closed-ended funds represent £1.5bn compared to the £1.1bn managed in Invesco’s remaining investment trust mandates.
Both investment trusts dwarf the next largest mandates in Invesco’s stable with the Keystone Investment, managed by James Goldstone and also in the UK equities space, the next largest with £191.6m. Invesco Asia follows with net assets of £179.8m.
The decision is a further blow for Barnett, who last week faced a 60% writedown on the unquoted companies in his portfolio that Invesco has now vowed to sell off.
Invesco hits back at timing of the announcement
Invesco has hit back at the timing of the Perpetual Income & Growth board’s decision in the middle of the coronavirus volatility.
A spokesperson said: “We understand the performance pressures that exist in today’s market, but since the half-year results we have embraced the board’s views on performance with improved results in the latter part of 2019, consistent with the principle-based approach we have always taken. We are disappointed that we were unable to build on this, given the recent extreme volatility in financial markets.
“These are extraordinary times as we all aware, and in our opinion require the experience and expertise of portfolio managers who have weathered severe cyclical shocks.”
> See also: Invesco response to Mark Barnett ousting at odds with Edinburgh trust actions
But investment trust analysts weren’t surprised by the announcement.
Barnett had been on “borrowed time”, according to Numis, while Winterflood Investment Trusts said the “clock has been ticking” for the UK equities manager. Winterflood said: “The timing may raise some eyebrows given present market conditions, but we believe that it makes sense to get the process of selecting a new manager started. Even under normal circumstances, it could take three months to identify, interview and select a replacement.”
At the time Barnett lost the Edinburgh Investment Trust mandate, the Perpetual Income & Growth board said the UK general election represented poor timing to review the closed-ended fund’s investment management arrangements.
His portfolio had been significantly exposed to the UK domestic economy, which he thought was deeply undervalued and would rebound once there was more clarity on Brexit.
But the Perpetual Income & Growth board said in its regulatory filing announcing Barnett’s removal that it “gave Invesco time to build on the early ‘Brexit bounce’ that was anticipated, but this proved to be short-lived”.
Mark Barnett outperforms Temple Bar
AJ Bell head of active portfolios Ryan Hughes noted other deep value investment trust strategies, like Temple Bar, run by Alastair Mundy, had delivered worse performance than Perpetual Income & Growth. The Ninety One fund manager was forced to ramp up cash and offset gearing as shares in his investment trust halved over three months.
But Hughes said Mundy had been much clearer in his approach and had not suffered “portfolio creep” in the same way that Barnett had. Barnett had also suffered a number of stock specific issues.
> See also: Alastair Mundy keeps faith in UK despite coronavirus bruising
Hughes met with Barnett in late 2019 although the Invesco fund manager does not sit within any of the platform’s portfolios or its buy list.
“There was an acceptance that there were clearly some stock selection issues that have gone on and a determination to get the portfolio right,” he said of the meeting.
Rivals set to be enticed by Perpetual Income & Growth’s sizeable assets
The sizeable net assets in the Perpetual Income & Growth portfolio and its high profile mean there is likely to be “significant interest from a wide range of assets managers”, Numis said.
Majedie could well swipe the second investment trust from Barnett and therefore argue for a merger, noted JP Morgan Cazenove. Troy Asset Management, Lindsell Train and Aberdeen Standard have delivered strong performance in the year to date and could make a pitch for the trust, it said in an analyst note.
Association of Investment Companies communications director Annabel Brodie-Smith said this would be the third management change in the investment trust space in the year to date, while five investment managers were swapped off mandates in 2019. “Boards have recently been proactive on this,” Brodie-Smith said.
Alongside the two Invesco investment trusts changing hands, Strategic Equity Capital was pulled from GVQ Investment Management and handed to Gresham House Asset Management.
“Independent boards work with the investment company’s fund management group to produce strong long-term returns for shareholders,” said Brodie-Smith. “However, if performance has been poor over a sustained period they have the all-important ability to terminate the management contract and move to a new fund management group.”
The Perpetual Income & Growth approach to replace Barnett diverged from that taken by the Edinburgh Investment Trust, noted Winterflood.
It said the Edinburgh Investment Trust made no advance announcement that a replacement was being sought and therefore did not provide an opportunity for wider interest to be expressed. The timing also coincided with the UK general election, which was due to have a marked impact on the direction of the UK market.
The Perpetual Income & Growth board has hired Mercer to facilitate the search alongside Winterflood Securities.