The resignation of Invesco Perpetual’s Neil Woodford has been compared with that of former Fidelity manager Anthony Bolton in the early 2000s in terms of significance, as experts react to the news.
Earlier this afternoon Invesco announced that Mr Woodford was leaving the firm in April 2014 to set up his own asset manager.
‘Bigger than Bolton’
Tim Cockerill, investment director at Rowan Dartington, compared the news to the initial news from Fidelity in the early 2000s that Mr Bolton was set to retire from his ultra-popular UK equity fund.
“This is the biggest news to hit the fund management industry since Antony Bolton stepped down from managing Fidelity Special Situations, but in reality it is considerably bigger given how much money he manages,” he said.
He said it was “hard to estimate” the level of magnitude of any investor exodus from Mr Woodford’s roughly £33bn of investment products.
“On the one hand, there is likely to be a very strong exodus following him to his new company - but until that is set up and investors know what he is offering, there is little reason to move.
“On the other hand, the size of outflow could potentially depress some the stocks’ values within the fund, so exiting sooner might be best.”
A notable flood?
Brian Dennehy, managing director at FundExpert.co.uk, said “a large trickle could turn into a notable flood”.
“Neil Woodford’s success over the last 15 years has to a large extent been based on one huge bet, what we have called the biggest and longest bet in fund management history – a consistently large overweight in defensives, in particular utilities, tobacco, and pharmaceuticals.
“Would any other manager have had the foresight to begin this strategy? And the fortitude to continue with it over such a prolonged period? I don’t think so.”
He said Mr Woodford’s replacement on the funds, Mark Barnett, ran an “outstanding fund” but his £256m of assets contrasts “hugely” with Mr Woodford’s level of assets.
Mr Dennehy added that investors with more than 10 per cent of their portfolios invested with Mr Woodford should consider reducing their exposure.
Remaining invested
Mark Dampier, head of research at Hargreaves Lansdown, advised investors to stay put.
“We believe investors need not consider selling the fund now and I myself will be remaining invested,” he said.
For new investors we would, however, we would suggest waiting until the new manager has taken over the fund and have suspended it from the Wealth 150 for the time being.”
A ‘huge loss’
However, Paul Surguy, head of managed funds at Sanlam Private Investments UK, told Investment Adviser it was a “huge loss” for Invesco.
“I assume they will lose a lot of money from this. It is inevitable. It is likely they will lose billions just based on what happened with Richard Buxton, when his fund lost more than half of its assets,” he said.
“Invesco are lucky they have Mark Barnett as he has better numbers than Woodford in the past five years as well as paying a better yield.
“It is a big step up for him, though he is obviously a fine manager. But he will have to look at things very differently now.
“If Invesco gets big withdrawals it will be interesting to see how the fund reduces its holdings. It has big chunks of unlisted and small cap stocks, big exposure at a company level, so that could be a struggle for them.”
Going against the herd
Harry Morgan, head of private investment management at Thomas Miller Investment, said Mr Woodford was “a bit of a genius, who has always been long term and willing to go against the herd”.
“An inspiration to his investors and to his competitors. The mighty Invesco Perpetual will of course rumble on, and there is no need for anyone to take hasty action,” he said.
Expecting outflows
Ben Williams, investment manager at Saunderson House, said it was becoming difficult for Mr Woodford to make aggressive changes on his funds owing to their balooning size.
“We would expect to see some outflows given Woodford’s track record and investors are likely to follow him once he moves next year,” he said.
“However, Mark Barnett employs a similar contrarian value investment approach and we would expect performance under the new manager to be fairly similar. There is a large amount of crossover between Woodford’s Income fund and Barnett’s UK Strategic Income fund, both having large positions in Pharmaceuticals and Tobacco and eight stocks in common in the top ten.
“However, Barnett’s higher mid cap weightings and allocations to more cyclically-biased UK companies, combined with the fund’s more nimble size, has helped the UK Strategic Income fund to outperform Woodford’s Income fund over 1,3 and 5 years.”
A ‘significant problem’
Alan Miller, chief investment officer and co-founder of SCM Private, said Mr Woodford’s new company would be “stunningly successful”.
“Whatever Invesco Perpetual say publically about Neil Woodford’s departure, it creates a significant problem for them,” he said.
“Invesco will find it very hard to replace him with anyone without losing a large chunk of the £34 bn managed by him. The story behind the headlines is that the more money or more different types of strategy (or both) that the fund manager employs, the harder it is to beat the pack. Information is more widely available so ‘superstar’ investors are less likely to have an edge.”
A number of concerns
Ken Rayner of research agency Rayner Spencer Mills said the announcement “clearly raises a number of concerns for investors”.
“We have some time before he leaves and so will review the changes in full before making any decisions on ratings and portfolios,” he said.
“The new managers are experienced and both have excellent records within the Invesco UK equity team and we will have the opportunity to meet with them in the near future.
“The funds will continue to retain their rating until we have had the opportunity to review the situation in full.”
2013: The year of major moves
Jason Hollands, managing director at Bestinvest, said the news set the seal “on 2013 being a year of major moves among leading fund managers”.
“We have seen the retirements announced for Jupiter’s Tony Nutt and Fidelity’s Antony Bolton, the defection of Richard Buxton from Schroders to Old Mutual and the exit of Fidelity’s Sanjeev Shah from managing money,” he said.
“With huge assets under his management, rival groups will salivating at the potential opportunity arising from this news in the belief the tectonic plates in the income world could be shifting.
“There is however no need for rash action. Woodford and Barnett have worked together for nearly 20 years and Barnett is currently a 3 star rated Bestinvest manager. Our research team met Barnett recently and their styles are very similar, with a high crossover of stock names between their respective portfolios. In light of our rating on Mark Barnett we will be downgrading the Invesco Perpetual Income and Invesco Perpetual High Income to from 4 stars to 3 stars.
“Whenever there is a manager move it is important to reappraise the view for holding a fund.”
