Mark Barnett’s former Invesco funds have continued bleeding cash one year after his departure despite a fresh change in leadership and a brighter outlook for value stocks.
The Invesco High Income and Income funds had been battered by redemptions since Barnett (pictured) inherited the mandates from his predecessor Neil Woodford. In 2019 amid the implosion of Woodford’s fund empire and a continued run of bad performance the funds saw an exodus of cash, shedding £1.8bn and £773m respectively, according to data from Morningstar.
By the time Barnett was booted off the mandates last spring, following a review of the UK equities desk, assets in his largest fund High Income had more than halved from £7.7bn at the start of 2019 to £3.3bn in May 2020.
Barnett was replaced by Ciaran Mallon and James Goldstone and Invesco overhauled the strategies, merging the smaller Income and Strategic Income funds and clarifying the mandate of the High Income fund.
They have since been rebranded as Invesco UK Equity High Income and UK Equity Income and now have differentiated income objectives.
UK Equity High Income targets a yield that is higher than the FTSE All Share index and pays out its dividend income quarterly, while UK Equity Income seeks a balanced return between income and capital, hunting further down the market cap scale where yield may be lower, and pays out semi-annually.
New managers fail to stymie outflows
But nearly a year later the change in management and direction has so far failed to stymie outflows.
Estimated net flows from Morningstar show UK Equity High Income was hit by £536m of redemptions from June 2020 to April this year, while UK Equity Income saw outflows of £346m over the same period.
While both funds have continued to be plagued by outflows under Mallon and Goldstone performance has improved.
However UK Equity High Income is still third quartile versus peers in the IA UK All Companies sector on a one-year view, returning 25.4% against the average 31.5%, while UK Equity Income is up 28.5%. Both are still sitting on losses over three and five years.
See also: Invesco faces long road stymying outflows despite end of the Mark Barnett problem
Jury is still out
Chelsea Financial Services managing director Darius McDermott believes the jury is still out on whether Mallon and Goldstone will turn performance around.
In the context of the value rotation, McDermott said the funds’ performance has been “a little disappointing” and has failed to match the highs of other value style peers in the past six months.
“It’s probably because they’re not out and out value managers but they should have had a better climb than that,” he said.
See also: Invesco unveils fewer punchy bets in first factsheets since Mark Barnett’s exit
Ex-Barnett funds flagged for underperformance in second AoV report
Once again both former Barnett funds were spotlighted for poor performance in Invesco’s second assessment of value report published earlier this month.
Of Invesco’s 52 funds, 15, including UK Equity High Income and UK Equity Income, were under the spotlight for failing to outperform their benchmark more than 50% of the time, while 15 were flagged for not consistently outperforming their benchmark as Invesco would have liked.
The fund board said UK Equity High Income and UK Equity Income’s focus on “UK domestic, sterling sensitive stocks” had hampered performance as momentum driven stocks led the market rally, especially since the 2016 EU referendum. It also noted that stock selection has driven underperformance.
See also: Mark Barnett spotlighted as Invesco reveals £23bn of underperforming funds
But the report notes that since Mallon and Goldstone took over the portfolio has been rebalanced and the investment process enhanced.
“The latest figures are encouraging following these changes, the fund’s performance has stabilised, ranking in the 2nd quartile of its peer group,” the fund board concluded.
On a three month basis, UK Equity High Income has returned 7.4%, while UK Equity Income returned 8.2%, compared to the IA UK All Companies average of 7.4%, according to Trustnet.
Mallon and Goldstone optimistic about prospects for UK equities
An Invesco spokesperson said “it is still very early days for the partnership, however the building blocks put in place over the past year will underpin performance in the months and years ahead”.
They added that Mallon and Goldstone are optimistic for the prospect for UK equities in general, and in particular for the prospects for the portfolios that they manage “as the UK begins to emerge from the effects of the pandemic, and also from an extended period of political uncertainty (not least around Brexit)”.
Over the last year, UK Equity Income sold out of the packaging company DS Smith as it performed strongly during the Covid crisis and reduced its holding in biotech company PureTech. New investments were made into gold miners Newmont and Barrick Gold, according to its latest factsheet.
Barnett has since resurfaced at Tellworth Investments, the boutique set up by former Schroders duo Paul Marriage and John Warren, where he will launch a UK mid and large cap income fund in the coming months.
See also: How challenging will it be for Mark Barnett to reinvent himself after Woodford fallout?
