Invesco’s Mark Barnett has issued a fresh plea to investors to stick with his funds after heavy outflows sparked fears that the under-fire stockpicker is vulnerable to a Woodford-style liquidity crunch.
Mr Barnett’s £5.7bn High Income and £2.6bn Income funds, which were previously managed by Neil Woodford, have suffered heavy outflows since the demise of Woodford Investment Management last year.
The outflows, which totalled £2.6bn for the year according to data provider Morningstar, have sharpened scrutiny of Mr Barnett’s portfolio and its susceptibility to a liquidity mismatch — when a fund cannot sell assets quickly enough to meet investor redemption requests.
In an update sent to clients this week, Mr Barnett sought to reassure investors about the robustness of his funds by revealing he had reduced their exposure to less liquid companies.
Mr Barnett said the funds had carried out “substantial sales of holdings across the spectrum of quoted and unquoted holdings” between July and December 2019.
“Despite the level of redemptions seen in the various funds, [these actions] have resulted in an overall improvement in the liquidity profile”, he added, pointing to an increase in the proportion of assets that could be sold within 20 days from 51 to 57 per cent for the High Income fund and from 64 to 68 per cent for the Income fund.
He added that the funds’ holdings of small-cap companies had fallen to 27 per cent of assets, down from their peak of 38 per cent in August last year, while investments in large companies had increased from 25 per cent in July to 35 per cent by the end of the year.
Mr Barnett, a one-time protégé of Mr Woodford, also sought to distance himself from the problems that his former colleague faced in managing his exposure to unlisted assets.
While Mr Woodford struggled to stay within a 10 per cent regulatory limit on unquoted stocks, Mr Barnett said his funds had achieved a balance which enabled unlisted investments to stay “well below” the limit. Unlisted companies represented about 5 per cent of the funds at the end of December.
Mr Barnett said he did “not regard any area of the funds as being wholly, and unavoidably illiquid”. He added that Invesco had many years’ experience in managing liquidity due to the funds having experienced outflows for several years.
It is not the first time Mr Barnett has sought to assuage investors’ concerns. In November, the stockpicker was forced to apologise to clients after Morningstar downgraded his funds, citing concerns over their exposure to smaller companies, as well as stock-selection issues.
Peter Brunt, associate director of equity strategies and manager research at Morningstar, said: “All active fund managers are wary of liquidity [and] want to prevent a run on their funds. It is not surprising that they are giving clear communications to investors and addressing the fact their portfolios may have gone a bit too far down the market cap scale.” He added that it was not yet clear whether Mr Barnett’s portfolio repositioning was sufficient to prompt Morningstar to reassess its rating.