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Mark Barnett, manager of the £10.5 billion Invesco Perpetual High Income and £5.2 billion Invesco Perpetual Income funds, has suffered a difficult 18 months, hurt by heavy share price falls from a number of major holdings like Provident Financial (PFG), Capita (CPI), BT (BT) and Allied Minds (ALML).
In a video interview in the Citywire studio, Barnett said his run of poor performance had been ‘very frustrating’ and admitted he could have better anticipated the impact of political uncertainty on some of his stocks.
‘Every year there are stocks that don’t work out in the way you’d anticipated. In the last year I’ve had too many of those,’ he said.
But he insisted that after re-examining stocks like Provident Financial and BT after their poor performance, he was convinced his original investment rationale was still intact.
This is the first of a series of video interviews that will be appearing on Citywire Money and Investment Trust Insider. Tomorrow on Citywire Money, we will feature Mark Barnett’s answers to your questions. And on Investment Trust Insider, Gavin quizzes Barnett on his Edinburgh (EDIN) and Perpetual Income & Growth (PIGT) closed-ended funds.
Daniel Grote: Hello, I’m Daniel Grote and I’m with Dylan Lobo and we’re joined today by Mark Barnett, who is manager of the Invesco Perpetual Income, High Income and UK Strategic Income Funds. Mark, thanks for joining us.
Mark Barnett: Morning.
DG: So Mark, it’s been over three years now since you took over the income and high income funds. I think it’s fair to say that your performance since then has been sort of a tale of two halves where you’ve marginally underperformed the FTSE All-Share over the period, but a lot of that underperformance, the more marked underperformance has come over the last 18 months. I mean, you’ve spoken about UK domestic stocks coming under pressure and being unfairly punished after the Brexit vote, but there have also been issues with a number of your large holdings, like Provident Financial, Capita, BT, Allied Minds. Are there any things that you feel that you should have done differently? Are there any mistakes that you feel that you’ve made?
MB: In the case of the number of stocks that you describe, which have caused me problems in the last 18 months, a look back with hindsight, you know particularly, things like Provident Financial, having made a lot of money over a ten year period in that stock, I actually had a high degree of confidence that the management were-, challenging the management on what they were doing and that they would be able to steer the company through the next period. That turned out not to be the case, but I look back and think, 'Could I have done something differently?' Well, probably not. In the case of stocks like BT and Capita, government related issues that have cropped up. Again, that’s the sort of thing where actually, in hindsight I probably could have anticipated that better.
DG: Actually, on Provident Financial I just wanted to focus on that because it was one of the most spectacular falls from grace in recent stock market history. I mean, do you look at the challenges that it faces and think, this is too big?
MB: Well, no because we have to disaggregate the issues for Provident Financial into two main areas. One is the self-inflicted problems around the home collected business relating to redrafting and reworking the sales force, if you like.
DG: I mean, should they not just go back to the old way?
MB: Well, no I don’t think there is any reason for them to go back to the old way. They need to adjust the model because the model that they developed was clearly too rigid and inflexible for the type of customer base they’ve got and also, given the legacy of a lot of part-time work that they employ.
DG: A lot of the focus with Provident has been on the difficulties in the home credit division, but the investigation into the repayment option plan that could be-
MB: Well that’s the other area of concern. In fairness, that is probably the bigger unknown quantity for the stock market. My sense is that the market’s overestimating the scale of the redress and I don’t think for a moment that the FCA wants to stop this company, i.e. the Vanquis Bank from providing credit card solutions to subprime customers.
Dylan Lobo: How frustrating has it been in the context of your whole fund management career? Has it been possibly the most difficult period for you?
MB: It feels very frustrating. Lots of things have gone right in the portfolios, incidentally. We highlighted some of the stocks that have not worked. There are areas that have done just fine and continue to deliver in a way that I would have expected. Some of my mid-cap holdings and there’s stocks like Burford, which have done extremely well and I’m the largest shareholder there. That as a business is growing very nicely and is doing really well.
Of course, there are challenges that come along. Every year there are stocks that don’t work out in the way that you’d anticipated. In the last year I’ve had too many of those and they’ve been large holdings.
So to have a large holding like a Provident or like a BT tripping up as badly as it has done, of course that’s frustrating, but when you have those sorts of challenges thrown at you, you come back to what you think was the original investment case, what was the rationale for the investment in the first place and you ask yourself the question, 'Has that changed to the extent that I’m no longer going to make what I thought I would out of that particular investment?'.
But in the case of something like Provident Financial and to a certain extent with BT, I don’t actually think the original rationale for the investment has significantly changed. The market’s perception of it has changed, but actually that’s the sort of frustration that you feel when you’re managing money.