Equities  

Invesco income fund adopts highest weighting to healthcare

Invesco Perpetual’s Mark Barnett has assigned his highest ever weighting in healthcare in his £208m UK Strategic Income fund.

The manager said he had allocated a 23 per cent weighting in the sector in anticipation that its dividends will grow in the coming months.

“It is a high for healthcare in the fund,” he said.

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“Historically they have not always paid a high dividend, but these businesses now exhibit decent and stable cash flow returns and have increasingly recognised the need to pay back to shareholders.”

The manager is focusing on Swiss pharmaceutical giant Novartis in particular, and has three other healthcare stocks in his top-10 holding list.

He said negative factors, such as the risk of ‘patent cliff’ – under which the rules protecting pharma giants’ drug patents are being relaxed – was already factored into the companies’ share prices.

“The one thing I do know is that the market is not asking me to pay for the upside in these stocks,” he said.

Neil Woodford, Invesco Perpetual’s star UK equity income fund manager, has long been a healthcare investor, and currently has pharma stocks in the top-three holdings lists of his two giant income funds.

But Mr Barnett said his decision to invest in healthcare stocks was his own.

“There is no core list; no list of stocks that Neil says everyone must own,” he said.

“What is in my fund is my decision.”

While the stocks that feature in Mr Barnett’s top-10 holdings are similar to Mr Woodford’s, the funds diverged significantly outside of their top-10 lists.

“There are similarities, but the differences at stock level are quite significant and are sufficiently differentiated [that investors are] able to hold both funds,” he added.

Within his financials weighting Mr Barnett is avoiding banks, preferring holdings such as specialist lender Provident Financial and insurance names Hiscox and Beasley.

Mr Barnett’s decision comes in spite of UK banks performing strongly in 2012, with Lloyds Banking Group rising 46.4 per cent over one year to January 2 to 49.7p and RBS rising 39.5 per cent to 334.2p, according to Bloomberg.

Elsewhere, Mr Barnett said he held big positions in support-services companies that had more “UK-driven revenue”.

“Companies like Capita and Serco have been derated on the back of more disappointing revenue growth but the cash flow growth is good,” he said.

“[Engineering support-services firm] Babcock has also performed very well. I don’t think these positions are riskier, I just think the market sees them differently.”

Over one year to January 2, Capita has risen nearly 16 per cent from 644p to 766p, while Serco has risen 9.5 per cent from 490p to 541.5p, according to Bloomberg.

The manager also said he had not spent time looking at increasing his technology exposure, even though many of his peers expect more tech companies to start paying dividends or increasing existing ones. To invest in such companies, which are mostly based in the US, Mr Barnett said he would have to sell overseas stocks that he still wants to hold.