Neil Woodford to depart Invesco Perpetual

Following today's surprise announcement, should investors switch their money elsewhere?.

If, like me, you are one of the many investors with money in a fund run by Invesco Perpetual’s Neil Woodford, then you may be as surprised as I was to see today’s announcement that he will leave the firm on 29 April next year.

It seems Mr Woodford wants to set up his own fund management firm and, after 25 years at Invesco Perpetual, it seems quite a natural decision. However, it begs the very obvious question: if you have money invested in one of the funds he manages what should you do? So let’s take a look.

Which funds are affected?

Neil Woodford currently manages the following four funds:

FundSize (£million)

Invesco Perpetual High Income 13,971.64

Invesco Perpetual Income 10,634.09

Edinburgh Investment Trust 1,175.60

SJP UK High Income 1,230.00

And also manages the equities portion of these two funds:

Invesco Perpetual Monthly Income 3,834.50

Invesco Perpetual Distribution 2,604.98

Will Neil Woodford continue running these funds until he leaves?

Invesco Perpetual says Mr Woodford will remain responsible for the High Income and Income funds until he departs, but that his successor for these two funds, Mark Barnett, will work alongside during a transition period.

As for the Edinburgh Investment Trust and SJP UK High Income funds, it’s too soon to say since these are run by external companies who outsource the management to Mr Woodford.

And the management of his portion of the Monthly Income and Distribution funds will be passed with immediate effect to Ciaran Mallon.

Are his replacements up to the job?

Mark Barnett has stellar track record spanning over 13 years at Invesco Perpetual, in fact better than Neil Woodford’s of late. However, he currently only manages around £1.4 billion across four funds, versus Mr Woodford’s £24.6 billion across the High Income and Income funds.

Assuming responsibility for such a significantly larger sum of money could prove very challenging for Mr Barnett. He will likely need to need to invest in more stocks and place larger ‘big picture’ bets than he is used to in order to add meaningful value to the funds. For example, Mr Woodford’s High Income and Income funds hold 118 and 127 companies respectively, with the 10 largest holdings accounting for 57% of each fund. By contrast, Mr Barnett’s UK Strategic Income fund invests in 74 companies with the 10 largest holdings comprising just 40% if the fund.

Ciaran Mallon also has an impressive track record over the time he has managed funds at Invesco Perpetual and in many ways he faces a far less daunting task than Mark Barnett. He’s assuming responsibility for far less money and his impact will be partially obscured by the funds having fixed interest investments managed by others. Bearing this in mind I think the chances are he will do a perfectly adequate to very good job.

Should you switch elsewhere?

Since it is generally so straightforward and cheap to switch funds these days, especially using platforms, I think there is a strong argument for investors in the Invesco Perpetual High Income and Income funds to consider moving to alternatives over the coming months. While I sincerely hope Mr Barnett succeeds when he assumes full control of the funds next April, there seems little reason to run the risk that he won’t when there are proven equity income managers elsewhere running far more manageable sized pots of money.

I see little reason to move away from the Monthly Income and Distribution funds as things currently stand.

What alternatives to the High Income and Income funds might be considered?

As a starting point I think the Cazenove UK Equity Income, Fidelity Enhanced Income and Threadneedle UK Equity Income funds are all well worth a look.

As an interesting aside, Neil Woodford’s announcement might also shift the balance of power towards those fund platforms who are currently trying to negotiate extra cheap ‘super clean’ fund versions when they next sit down with Invesco Perpetual.

Read this article at http://www.candidmoney.com/articles/276/neil-woodford-to-depart-invesco-perpetual