InvestmentsAug 5 2020

Boss of former Barnett trust on why merger was best option

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Boss of former Barnett trust on why merger was best option

The chairman of the Perpetual Income and Growth investment trust has revealed the reasons why he chose to merge the underperforming vehicle out of existence. 

Investment trust mergers are rare, but Richard Laing said the board decided it was happy to pursue a merger if it meant getting the best possible manager for the trust. 

He told FTAdviser: “We knew we had to make a change in April as we were simply not getting the required level of performance from Mark Barnett. At that time we discussed whether a merger with another trust might be an option, and agreed that it should be an option if it meant better investment performance.”

As FTAdviser previously reported, the board of the Perpetual Income and Growth investment trust proposed to merge it with the Murray Income Trust, which is run by Charlie Luke at Aberdeen Standard Investments.

Perpetual Income and Growth had been managed by Invesco’s Mark Barnett, before he was removed in April. Mr Barnett subsequently left his role as co-head of UK equities at Invesco. 

Mr Laing said after speaking with a number of fund houses, the board decided to place the trust’s capital with Mr Luke even though that meant a merger, as Mr Luke already ran a competitor product.

Mr Laing said: “There are benefits to shareholders from a merger, there is more liquidity as a result of the trust being larger, and also the fees can come down, because big trusts have low fees, and dare I say it, smaller trusts have higher fees.”

The combined trust will charge 0.5 per cent annually, compared with 0.73 per cent for the Perpetual Income and Growth trust on its own. It will have assets of over £1bn.

Mr Laing acknowledged the dividend yield on the combined trust will be lower than it was on Perpetual Income and Growth, at least initially, but said: “I think the yield on Murray Income is safer than the yield on the Perpetual trust, and that matters in this climate.”

The shareholders in Perpetual Income and Growth will receive a one-off dividend this year, paid from the reserves of that trust, meaning the total dividend income they receive this year could be higher than last year, despite their investment being in a trust with a lower income.       

The £580m Murray trust has outperformed its peers in the AIC UK Equity Income sector over a one year-, three year-, five year- and 10 year-period, returning 38 per cent over the past five years compared with the average 1.5 per cent from its peers.

By comparison, the £635m Perpetual Income and Growth mandate has underperformed the sector across all time periods, losing 35 per cent over the past five years.

Mr Luke deploys the growth style of investing, in contrast to the value style favoured by Mr Barnett.

The value style of investing has been sharply out of favour with investors since the end of the global financial crisis, as low inflation and low interest rates tend to lead to outperformance of growth stocks.