Equities  

Where to next for Woodford’s investors?

There are certain dates that people naturally remember – birthdays, wedding anniversaries, Christmas – but October 15 2013 will be one date that is sure to be branded on advisers minds for years to come.

Why? Because on this date the most well-known UK equity income manager left his role at Invesco Perpetual and more than £30bn in assets under management to embark on a new venture.

Neil Woodford’s career at Invesco Perpetual spans 25 years and is famed for his controversial decision to stick with tobacco stocks in 1994 in spite of major litigation against cigarette companies in the US and to stay clear of technology stocks in the run up to the tech-bust of 1999-2000.

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This contrarian approach, while having periods of underperformance – his decision to avoid banks in 2008 saw his High Income fund lose 19.4 per cent while the index gained 28.3 per cent – has certainly worked in the long term. If you had invested £1,000 in Mr Woodford’s Invesco Perpetual UK High Income fund right at the start, today you would be sitting on £23,528.73. So what now for those invested in one of the funds managed by the infamous investor?

Whitechurch Securities managing director Gavin Haynes says that those already invested shouldn’t panic just yet, but urges caution for those looking to allocate new monies.

“There is no need for investors who hold his funds to panic in the short-term. Mr Woodford is committed to running the funds for the next six months and will be keen to ensure that his exceptional track record is not tarnished.

“However we would not recommend putting new monies into the Income and High Income funds following the news. It will be a big challenge for his replacement Mark Barnett to recreate this performance especially given the scale of monies invested in these funds. Alternative UK income funds that we would recommend include Artemis Income, Rathbones Income or Miton UK MultiCap Income all have highly experienced managers.”

Delyth Richards, head of funds research at Kleinwort Benson, however, sees Mr Barnett’s appointment as Mr Woodford’s successor as an opportunity to buy.

“We may consider this an opportunity as Neil Woodford’s style is wedded to longer term holdings, and has been positioned defensively. If we move into a rising interest rate environment, Mr Barnett’s style of management could potentially be better suited,” he says. But who is Mr Barnett and how can investors be sure that their money is going to be handed to a safe pair of hands.

Mr Barnett joined Invesco Perpetual in 1996 from Mercury Asset Management and is the sole manager of a number of funds, such as the Invesco Perpetual UK Strategic Income fund and the Perpetual Income and Growth Investment Trust.

Since taking on the management of the UK Strategic Income fund in 2006, he has turned a £1,000 investment into £1,959. The Perpetual Income and Growth Investment Trust has seen £1,000 grow to £4,595.92 since Mr Barnett took the trust on in August 1999. Mr Richards adds: “Mr Barnett manages assets of more than £1bn and the performance of his Invesco Perpetual Strategic Income fund has outperformed Neil Woodford’s [Income and High Income] funds in the past four years.”