Neil Woodford's decision to quit Invesco Perpetual's flagship income and high income funds has sparked a well-reported exodus of savers determined to follow the star manager into his new fund-management venture. Against the backdrop of a flat market, the funds have shrunk about 8 per cent since the announcement on 15 October.
One consequence is that Mr Woodford, who will continue to run the funds until he leaves in April 2014, is selling some of his most obviously liquid stakes in individual companies to meet redemptions. As well as the big-name disposals - the likes of Provident Financial, Drax and Capita - Mr Woodford has sold his entire £35m stake in Assura Group(AGR), the £200m healthcare landlord, to rival fund manager Artemis.
That sets a potentially destabilising precedent for other small companies in which Invesco holds large equity stakes - especially if the fund’s bearish investment strategy changes when Mr Woodford's successor Mark Barnett takes over. Mr Barnett "envisages some changes, but not major ones", says an Invesco spokesperson. But revealingly the manager told The Telegraph: "There are some of the smaller companies that Neil has bought that I need to get to grips with."
For all his famed caution on the UK economy, Mr Woodford built up stakes in a number of smaller companies that would qualify as speculative rather than defensive investments. Healthcare companies were a particular favourite and, under Woodford's leadership, Invesco became one of the most important investors in the UK biotech sector. For example, e-Therapeutics (ETX), a tiny drug development company, was the beneficiary of more than £20m of investment from Invesco at the start of this year, taking the fund manager's stake to nearly 50 per cent. The company had no comment to make regarding the stake's future, and the fact that Invesco isn't showing much of a profit on its investment may inhibit a fire sale.
Other healthcare companies in which Mr Woodford holds big stakes include the often luckless drug developer Vernalis (VER), regenerative medicine specialist Tissue Regenix(TRX), medicine-efficiency expert Oxford Pharmascience(OXP) and Retroscreen Virology(RVG), a developer of new drugs for respiratory diseases.
Mr Barnett has little obvious experience with such companies. The Invesco Income Growth Trust, which Mr Barnett already manages, contains no healthcare company beyond GSK, AstraZeneca (AZN), Smith & Nephew(SN) and Synergy Healthcare(SYR). Of course, Mr Woodford may buy the stakes from his former colleague once he has set up on his own - but it will take time to raise funds. Small-cap pharma investors beware: major stock overhang problems could arise in the wake of the change of guard at Invesco.
