DFMs begin selling Woodford funds

Discretionary managers are selling out of Neil Woodford’s Invesco Perpetual funds following the announcement of the star manager’s resignation.

The Invesco Perpetual Income and High Income funds were widely held by discretionary managers in bespoke and model portfolios, but some managers have already made moves to sell.

Alan Sippetts, investment director and head of research and funds development at Heartwood Wealth Management, said he had removed the positions in Mr Woodford’s funds in his firm’s balanced and cautious income portfolios.

Article continues after advert

He said the positions were quite small, only making up approximately £3m of the firm’s £1.7bn of assets under management, so it was not a hard decision to sell out.

Even before Mr Woodford’s departure, Mr Sippetts said he had been concerned about the star manager’s funds because he had been “running too much money and had not been outperforming for quite some time”, so Mr Sippetts took the opportunity to sell out.

He said the proceeds initially went into cash and will be used on the C-share issue from the Battle Against Cancer Investment Trust, a fund-of-funds trust that doesn’t charge a fee, instead donating 1 per cent per year to cancer charities.

Any remaining cash will be distributed among Heartwood’s other UK equity income funds from Majedie Asset Management, JO Hambro Capital Management and Heronbridge.

Brewin Dolphin has also removed the Invesco Perpetual High Income fund from its balanced and income model portfolios because it has downgraded its rating on the fund from a ‘buy’ to a ‘hold’.

However, the firm held off from recommending that its investment managers sell the fund in bespoke portfolios, citing the strong track record of Mark Barnett, Mr Woodford’s successor.

Ben Gutteridge, head of funds research at Brewin Dolphin, said: “In Mark Barnett, investors are inheriting a manager of the highest pedigree.

“His ability is no better demonstrated than in the performance of the Perpetual Income & Growth Investment Trust. Since Mr Barnett assumed control in 1999, the trust has delivered an annual return of 11.1 per cent versus 4.3 per cent from the broader UK equity market.

“This alpha generation, combined with a proven ability to grow dividends, leaves us feeling very comfortable with Mr Barnett taking on the mantle.”

The discretionary manager has replaced the fund within both its balanced and income models with the Threadneedle UK Equity Income fund, managed by Leigh Harrison, which it already held.

Mr Gutteridge said: “The Threadneedle fund is not as defensively positioned as Invesco Perpetual. However, the more pragmatic view of the manager fits neatly with our own more optimistic view on economic growth.

“The Threadneedle fund is large enough that it will be able to absorb any of Mr Woodford’s ‘fallout’ without too much disruption to portfolio implementation.”

However, Paul Surguy, head of managed funds at Sanlam Private Investments UK, said he was in no rush to sell out of his holdings in Mr Woodford’s funds, although he admitted he was looking carefully at alternatives.