Invesco Perpetual’s Mark Barnett has briefed discount broker Hargreaves Lansdown about his plans for the Income and High Income funds when he replaces Neil Woodford.
Mr Barnett is set to take on management of the funds in May when Mr Woodford leaves and has outlined how he will overhaul the £13.2bn High Income and £9.1bn Income funds.
In a meeting with Hargreaves Lansdown, Mr Barnett said that he would be looking to reduce the number of holdings in both funds from roughly 120 currently down to between 60 and 80 stocks.
However, he revealed that it may take “two or three years” to offload the small unquoted companies in the portfolio, so the reduction in the number of holdings may need to come from larger stocks.
Mr Barnett also claimed that he wanted to increase the exposure to mid caps in the Income and High Income funds, mirroring the mid cap holdings in his £394m Invesco Perpetual UK Strategic Income fund.
Adrian Lowcock, senior investment manager at Hargreaves Lansdown, said to increase the exposure to mid caps while reducing the number of holdings will be “very tough” to pull off due to the sheer size of the two new funds.
Another problem with reducing the overall holdings is that Mr Barnett has pledged to unwind some of the big stock and sector bets made by Mr Woodford.
In particular, the Income and High Income funds under Mr Barnett will have a maximum of 6 per cent in any one stock.
This will require Mr Barnett to significantly sell out of GlaxoSmithKline and AstraZeneca, which both take up much more than 6 per cent of the funds.
“Historically he has taken smaller sector bets and we would expect this to be the case in the future,” Mr Lowcock said.
“Less sector and stock specific ‘big’ bets suggests that the funds will eventually become less volatile relative to the index and peer group.”
However, Mr Lowcock said that, in his view, “the fund is likely to become more of a mega cap fund” under the management of Mr Barnett.
“Given that few can add value in the mega cap stocks this is a concern,” he added.
Mr Woodford’s departure could also see the unquoted stocks in the Income and High Income become a much higher proportion of the funds’ assets.
This is because outflows will need to be met by the large, liquid stocks, so significant outflows could lead a drastic change in the make-up of the funds.
Mr Barnett was announced as Mr Woodford’s successor when the star manager announced his shock resignation last year.