Opinion  

Mr Woodford and his incredible shrinking Invesco Income fund

John Kenchington

Something of a phenomenon has emerged at the Henley HQ of Invesco Perpetual since the spectacular resignation of Neil Woodford.

Why is there such a major disparity in the size changes between Mr Woodford’s two gigantic equity income funds?

High Income, the younger fund of the two that was launched for Mr Woodford in 1988, has fallen in size by just £243m to £13.7bn, according to FE data correct to November 20 – a 1.74 per cent reduction.

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But Income, the older sibling that launched in 1979 but was only taken over by Mr Woodford in 1990, has shed a whopping £992m of its size to £9.6bn – 9.4 per cent of shrinkage.

What’s the reason for this?

A call to the press office requesting information was met with a characteristic “no comment” last week.

The discrepancy cannot be explained by the difference in performance on the funds – their returns have been, as ever, almost identical at 2.24 per cent and 2.25 per cent since the resignation.

The group has not sought to market them in a different way and they have identical investment objectives, structures and share class options.

Their accounting periods and the nuances of their holdings differ slightly but this is surely immaterial.

Hargreaves Lansdown investment pro Adrian Lowcock points out that since institutional and discretionary clients tend to be the first to pull their money out when managers resign, it’s likely that Income has more of this type of client.

But it’s not clear why.

It’s also possible that because Income is smaller, and therefore looks less vulnerable to the capacity constraints that can dog excessively large portfolios, it has been selling more heavily in recent years and therefore has more ‘hot money’ to lose.

Did the Income fund just happen to have one or two major institutional investors – pension funds, for example – who have initiated massive redemptions?

For investors who are continuing to invest in Mr Woodford in the meantime, it might be worth diverting your flows to High Income as the signs suggest it’s going to be more stable in scale terms and therefore less prone to disruption.

One major backer of Mr Woodford is Jupiter’s Merlin multi-manager team and factsheet data shows it owns Income. If Merlin decides to pull the plug – currently we understand it has not – then this disparity could become even greater overnight.

However, as Mr Lowcock also points out, it may be six of one and half a dozen of the other because it could also prove advantageous to invest in a slimmed-down, more nimble Income fund.

Some guidance from Invesco on the reasons for this disparity wouldn’t go amiss if it wants to help investors make informed choices.