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Invesco's Mark Barnett answers your questions

by Daniel Grote Nov 30, 2017 at 16:38

In the second part of our series of video interviews with Mark Barnett, Invesco Perpetual's head of UK equities answers questions from Citywire Money readers.

Thanks to everyone who contributed questions ahead of the interview, and apologies that we weren't able to ask more than we did. 

In this video, Barnett discusses why he is more optimistic on the prospects for UK domestic stocks than most, how the Brexit negotiations are impacting his stock picking and the potential impact on markets from a Labour government. 

Can't watch now? Read the transcript

Daniel Grote: Last week, ahead of this interview we asked Citywire Money readers for their questions to you.  So Ken Adams asked, 'I’m not so concerned about past performance, I’m much more interested in what he thinks about the future of UK equities.' and you said before that you think domestic UK stocks have been unfairly punished by the Brexit vote. What makes you so convinced that other investors have got it wrong and they are going to perform better than expected?

Mark Barnett: Well again, the UK economy-, just as a starting point here, the UK economy is, albeit performing less well this year than last year, it’s not falling off a cliff. Far from it, actually. The key three GDP numbers that we saw a few weeks’ ago were better than expected and actually, represent an economy which is still expanding. That as a starting point is a much better outcome than most people would have anticipated immediately post the referendum result.  

We have, what looks like a weak government, as a result of the general election and actually, there is uncertainty at its height at this point in time and if we get-, which I believe we will do, if we get a resolution to stage one of the Brexit negotiations, which is effectively the divorce bill that we’re negotiating at the moment, Sterling will continue to rally, as it has done all year by the way. It bottomed in January.  Sterling will continue to rally and the expectations around the outlook for UK domestic companies will be slightly less bad than it is today and that will create a nice tailwind for UK stocks.

DG: On that note, if I just turn to a couple of questions from another of our readers, Micawber. On the Brexit negotiations, you’re enthusiasm for UK domestic stocks, how would that change under different sorts of Brexit and to what extent are you factoring that into your strategy?

MB: My starting point is that we will not have a hard Brexit.

DG: If we do?

MB: It will make me think harder about putting fresh money in.  Having said that, I’m not putting forward a case for a strong UK outlook and I certainly think you have to tread carefully when you’re going into UK stocks because there are all sorts of pressures around, not just because of the Brexit negotiations, because of the way the economies evolving, because of the digitisation of the economy, because of wage pressures etcetera. So there are issues in the background. 

We’ve had some high levels of inflation this year, which have pressurised consumption a little bit. There are issues around. So I’m not suggesting that we’re going to move to this very positive scenario for the UK economy. I just think relative to what’s priced into these assets, I think there is a disconnect that is not reflected in the valuation of these companies.

DG: You mentioned governmental impact on some of the stocks that’s happened over the last year or so. A Labour government, how would that change how you perceive the UK economy and domestic stocks?

MB: The starting point would be the market would probably take that bearishly. Currency would fall again particularly, in response to their suggestions around nationalisation and around government borrowing etcetera. Actually, the UK economy-, if what they were trying to do was put more money into people’s pockets, then that might help in certain regards with the aspects of consumption in the economy. So I could put together a set of scenarios which suggest that in the short-term, the economy would do alright under a Labour government.

Longer term there would be issues around the amount of debt that they would propose to accumulate and how that would affect the long-term financing outlook for the UK economy and the deficit etcetera, but in the short-term actually, I could put forward an argument which suggests that potentially, the UK economy might not do too badly in the short term.

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Comments  (10)

  • Keith Cobby: 

    Pleased to have sold PLI and EDIN before the last 5 years of very poor performance. Nothing he has said gives any confidence that his funds will improve.

    18:27 on 30 November 2017

  • Les Ware: 

    Perpetual is being run, Badley. How could you have done so bad ,in the biggest of all bull markets. What is going to happen now. I bet he does not no. Be carful of people who follow others. Woodford comes to mind.

    18:36 on 30 November 2017

  • Les Ware: 

    Perpetual is being run, Badley. How could you have done so bad ,in the biggest of all bull markets. What is going to happen now. I bet he does not no. Be carful of people who follow others. Woodford comes to mind.

    18:36 on 30 November 2017

  • john barker: 

    Likewise, I was not impressed by Barnett's responses. Understandably, not all questions could be asked, but there was enough there to get the gist of his approach to investing in the UK market -- now, and the immediate future.

    Laid back, genial, relaxed -- with a general feel of 'don't worry, all will come good'.

    I don't know whether this is 'Barnett' or 'Perpetual' house style, but either way, the results have not been good, and I'm not expecting any improvement based on this interview.

    Perpetual would do well to reflect on this. Well down on my 'go to list' now.

    19:40 on 30 November 2017

  • andrew moffat: 

    The interview was better than none but this was not a grilling and 4.5 mins was far too short a period in which to conduct it. The suspicion remains that we have, here, a Woodford clone in almost exactly the same stocks and making similar mistakes. Given the size of both managers' portfolios, one can just imagine the carnage if both were to seek to offload the same stocks at the same time.

    The Boards of the Investment Trusts should be flashing red by now and considering new management teams.

    20:28 on 30 November 2017

  • andrew moffat: 

    The interview was better than none but this was not exactly a grilling and 4.5 mins was far too short a period in which to conduct it. The suspicion remains that we have, here, a Woodford clone in almost exactly the same stocks and making similar mistakes. Given the size of the portfolios of both managers, one could imagine the carnage were both to sell the same stocks at the same time.

    One would expect the Boards of the investment trusts concerned to be flashing red, currently, with the possibility of seeking new managers.

    20:35 on 30 November 2017

  • Micawber: 

    Thanks for putting the questions.

    Barnett and Woodford are placing heavy bets on the UK domestic economy in one way or another. Woodford is again quoted today in the media saying that shares are in a bubble, quality yielders are overvalued, unloved UK domestic stocks are his defensive choice and he "is certain he's right" - dangerous sign?!. If Brexit and Labour don't work out, those bets are misplaced and apparently unhedged.

    09:36 on 01 December 2017

  • andrew moffat: 

    Yes, you are correct Micawber. This is rather less about investment than it is about speculation. Much now depends upon whether the Government can last, whether Corbyn could then win a majority and whether Sterling rises or falls (and a scenario can be constructed for both cases, including a complete collapse if Corbyn were to enter No 10).

    11:39 on 01 December 2017

  • Dennis .: 

    Beware salesman bearing gifts....

    09:43 on 02 December 2017

  • Powerful Pierre: 

    I've more recently become wary of Woodford's bearish stance and Barnett seems to be following in his footsteps. OK we might be nearing the end of a bull market, but the UK economy seems to be doing reasonably well, despite the threat of Brexit and/or Corbyn. I know the good times can't go on forever, but ...

    Having read this interview, I'm glad that I recently sold unit trusts IP Distribution, IP Monthly Inc Plus (and previously IP Hi Inc and IP Hi Yield) and also Woodford Eq Inc. Woodford Patient Cap I'm holding as I'm well aware, from experience, that technology can take a very long time to commercialise successfully. But then, all this depends on your own financial situation, your strategy and sources of income etc.

    13:13 on 02 December 2017

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