JEFF PRESTRIDGE: Why trusts hold a stronger hand than other fund forms

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JEFF PRESTRIDGE: Why trusts hold a stronger hand than other fund forms

It remains to be seen whether Edinburgh Investment Trust’s decision to replace its fund manager in the New Year proves a shrewd one.

After all, no one can predict with certainty how a specific investment manager or investment team will perform in the future (think no further than Neil Woodford: good at Invesco, disastrous at Woodford Investment Management).

But its move to axe Invesco in favour of little-known Majedie Asset Management demonstrates an advantage that investment trusts hold over other fund forms such as unit trusts and open-ended investment companies – namely the ability to act decisively in the interests of shareholders if investment matters need shaking up.

‘Son Of Woodford’ Mark Barnett has been sacked from the Edinburgh Investment Trust

This is because investment trusts, like any stock market listed company, are overseen by independent boards that have the power to sack managers who are not stepping up to the mark. Such fiercely independent oversight does not exist for funds where only in extremis (Woodford) are errant managers jettisoned.

Certainly, the management of the £1billion Edinburgh Investment Trust was ready for a shake-up after nearly six years of underperformance under the stewardship of Invesco – and in particular Mark Barnett. 

Over this period, it lagged behind both its peers – other equity income orientated investment trusts investing in the UK stock market – and its stock market benchmark, the FTSE All-Share Index. If he were a football manager, he would have long been given the proverbial boot. 

Regular readers of this column and our Wealth section will know all about Barnett’s woes. 

Dubbed ‘Son Of Woodford’ as a result of being mentored by the fallen star at Invesco, Barnett has had a torrid time in recent years – for a variety of reasons. Not just at Edinburgh but also as manager of a number of Invesco funds – most notably at multi-billion pound funds Invesco Income and Invesco High Income.

For a start, his particular investment approach – buying shares in perceived undervalued companies – has been horribly out of favour, although the resounding Election result could well trigger a welcome reversal in fortunes. 

More culpably, he’s also made some pretty awful stock selections and held big stakes in illiquid stocks he should have never been anywhere near. 

Interestingly, Majedie’s James de Uphaugh, the manager in waiting at Edinburgh, says there are only 11 stocks among the trust’s 42-strong portfolio that are obvious holds.

Investors have deserted the leaky Invesco fund ship in droves while fund ratings agency Morningstar has downgraded both Invesco Income and Invesco High Income, making them about as appealing to investors as Woodford announcing the launch of a comeback fund.

Barnett’s sacking from Edinburgh is probably not the last straw. Unless he ups his investment game pretty soon, he could well lose the contract to manage £700million investment trust Perpetual Income & Growth.

Two final thoughts. First, Majedie’s arrival at Edinburgh will result in a reduction in the trust’s annual management charges from £5.9million to a shade under £5.1million (based on the trust’s current market capitalisation). That works out at an annual 0.47 per cent – a tad more if you add in sundry fees. 

Equivalent charges on Invesco Income and High Income are above 0.9 per cent although some fund platforms may give investors a small discount, bringing this down to below 0.9 per cent.

Surely, it is time for Invesco to reduce its cut of the shrinking Income and High Income cakes. It’s the very least patient investors are owed.

Secondly, the ‘overseer’ of Invesco Income and High Income (the so-called authorised corporate director and the equivalent of an investment trust board) is none other than Invesco Fund Managers. Do you think they (IFM) would ever sack Invesco for failing to deliver satisfactory investment performance?

Turkeys voting for Christmas springs to mind.

 



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