Barnett hits back over liquidity concerns

Barnett hits back over liquidity concerns

Invesco fund manager Mark Barnett has hit back at concerns over the liquidity of his income funds, claiming both portfolios are “appropriately positioned”, “well diversified” and “well-managed”.

Last week Morningstar downgraded Mr Barnett’s £6bn High Income and £2.8bn Income funds when its analysts cited concerns of style drift, increased exposure to mid- and small-cap companies, and “less attractive” liquidity.

But in a note to investors on Friday (November 8) Mr Barnett said the liquidity in the portfolios remained strong and had so far been “very manageable”.

He said Invesco had invested heavily in its investment processes and that its “experienced team” worked closely with experts to monitor and manage risk and liquidity.

Mr Barnett noted the funds’ exposure to unquoted companies understandably drew attention but stressed he had changed the way the funds invested in such stocks, reducing the total exposure to unquoted investments by half (around £1bn to £500m) in the five years since he took over the management role.

In 2014 Mr Barnett took over the funds from former star fund manager Neil Woodford.

Mr Woodford has hit the headlines over the past year after his flagship fund was suspended, triggering a domino of events which eventually led to his investment firm Woodford Investment Management announcing its closure.

Due to Mr Barnett’s similar investment style to that of his predecessor — both focus on UK facing and often smaller companies — a number of comparisons have been drawn between the two.

Last week concerns were raised over certain stocks that feature in both, Mr Barnett's and Mr Woodford's funds, and are currently facing a sell-off.

But Mr Barnett shrugged off the comparisons, telling investors in the note that under his stewardship the funds had “chartered a very different course” and it could not be overstated that the portfolios were now “very different”.

He said the overlap between his own portfolios and the Woodford Equity Income fund was less than 15 per cent, as at June 3, which he claimed was “very low” for two UK equity income portfolios.

Mr Barnett also tackled his funds’ poor performance. His Income fund is ranked 227 out of 230 in the IA UK All Companies Sector while his High Income fund is 226th.

Both funds returned about 10 per cent in the past five years compared with their sector's 38 per cent.

Mr Barnett told investors the performance was “disappointing” and said he regretted some of the stock specific challenges, but thought his investment strategy would prove correct in time.

He added: “Since the EU Referendum result in June 2016, an extended period of political uncertainty has resulted in a wide degree of polarisation within the UK equity market.

“Companies with substantial overseas revenues have benefitted from the devaluation of sterling and, by contrast, we have seen a sustained de-rating of UK domestic facing stocks.”

Brexit had caused a headwind for Mr Barnett’s funds, which are particularly exposed to the UK, but he said recent political moves had pointed to the “very real opportunity” he believed awaited for his funds.