Woodford Protege Has Clients Flee Style That Doomed Mentor
Woodford Protegee Has Clients Flee From Style That Doomed Mentor
(Bloomberg) -- Invesco Ltd. money manager Mark Barnett is following a path similar to the one that led to his mentor Neil Woodford’s stunning fall.
The Invesco money manager has changed his main fund’s focus to load up on less liquid securities, a style drift that echoes Woodford’s. Barnett has invested more than two thirds of the 6.1 billion pound ($7.8 billion) Invesco High Income Fund in micro-, small- and mid-cap stocks, up from less than a quarter when he took over in 2014, according to data compiled by research firm Morningstar Inc.
With his main strategy underperforming and comparisons being drawn between him and his former boss, some investors are already heading for the exit. Barnett’s four funds saw outflows of 1.7 billion pounds this year through September, according to Morningstar data.
The outflows underscore the perils for managers who adopt a strategy that includes thinly traded securities. Investors are already skittish in a challenging environment for active managers where cheaper passive funds are threatening the once-dominant market position of star fund managers.
“Mark’s got to be careful to keep a balance,” said Simon Molica, a fund manager at investment platform AJ Bell Plc, which allows investors to buy into Barnett’s funds. “That didn’t happen with Woodford. I wouldn’t say Invesco is at that point but he’s got to be very conscious of his investor base.”
Firm-wide outflows have been mounting. In September, investors pulled a net 967 million pounds from Invesco’s U.K. money pools. That’s almost half of all withdrawals seen that month from U.K. funds.
Read more: Invesco Sees Largest U.K. Fund Outflows Since Woodford’s Exit
“Redemptions are well within normal market level, have not materially increased and are well within the anticipated parameters,” according to an emailed statement from Invesco. “Liquidity management is a key element of our approach to fund management and liquidity in the portfolios continues to be very manageable.”
Woodford started out by investing in large, liquid stocks, but over time moved toward smaller companies, dramatically altering the profile of his fund. Nearly 97% of the assets in his flagship fund at the end of May were allocated to micro-, small- and mid-cap stocks, up from 40% in January 2016, according to data compiled by Morningstar.
Firm Collapse
The ratcheting up of the relatively less liquid securities was at the heart of his rapid decline. As performance lagged and more investors asked for their money back, Woodford wasn’t able to sell those positions quickly enough to honor withdrawal requests.
The suspension of his flagship fund in June led ultimately to the collapse of his investment business last week.
Barnett took the reins of Invesco High Income and Invesco Income funds following Woodford’s decision to leave the firm in 2013 after more than 25 years. The duo had worked together for 17 years and during that time Woodford became his mentor.
Although the two men went their separate ways, the funds passed on continued under Barnett to invest in similar stocks to Woodford. While Invesco says the duplication has decreased over the years, at one point in 2019 they still had 24 common investments with the flagship LF Woodford Equity Income Fund, according to data compiled by Morningstar.
The two funds that Barnett took over have seen their assets shrink to about 9 billion pounds from 24.6 billion pounds in 2013.
Performance Lags
“The degree of overlap with Woodford Investment Management has diminished significantly over the past five and half years as we manage our U.K. equity portfolios very differently,” according to an emailed statement from Invesco.
Like Woodford, Barnett has struggled to perform. In three out of the past four years, Barnett’s biggest fund has lagged the FTSE All Share Index. The fund was up 1.7% this year through Oct. 23, trailing a near 13% advance in the benchmark.
The upheaval at Woodford’s firm adds to the challenging environment for active managers. In a sign that investors are shifting their cash away from such managers, Morningstar said that eight of the 10 funds that saw the highest net inflows in the third quarter used passive strategies.
“It’s been a disaster for active management,” said Ben Yearsley, investment director at Shore Financial Planning. “It’s a poor advert for active management and investing. It’s really been a poor six months for the City of London.”
To contact the reporters on this story: Suzy Waite in London at swaite8@bloomberg.net;Nishant Kumar in London at nkumar173@bloomberg.net
To contact the editors responsible for this story: Shelley Robinson at ssmith118@bloomberg.net, Patrick Henry
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