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Invesco's Mark Barnett's income products labelled 'Dog Funds'

Platform produces biannual report highlighting consistently underperforming funds.
August 23, 2018

Invesco Perpetual’s star UK equity income manager Mark Barnett’s recent performance woes has seen him named in the Bestinvest ‘Spot the Dog’ report – which highlights equity funds that have consistently underperformed their benchmark over the past three years.

The report, published every six months, lists 'dog funds' that have underperformed the benchmark in three consecutive 12-month periods, and by more than 5 per cent cumulatively over the period.

Its latest edition, studying performance to 30 June 2018, saw Mr Barnett’s three funds, Invesco Perpetual Income (GB00BJ04HX60), Invesco Perpetual High Income (GB00BJ04HQ93) and Invesco Perpetual UK Strategic Income (GB00BJ04KZ97) shamed. Collectively the funds account for almost £14bn in assets.

Mr Barnett’s UK equity strategy has had a torrid time since February 2016, when the FTSE 100 and FTSE All-Share indices rose substantially following a rebound for mining stocks and then later for oil and gas companies. The Invesco funds are all heavily weighted towards financials, which have not rallied as strongly.

More recently, Mr Barnett had stock-specific issues with Provident Financial (PFG), AstraZeneca (AZN) and G4S (GFS), which has further hampered performance.

His inclusion in the latest report comes amid a spike in the number of active UK equity funds struggling to keep up with their benchmark. There are now 18 UK equity ‘dog funds’ compared with only two six months ago. The report said this highlighted a wider concern for UK equity investors.

It said: “Most of these new entrants have income generation as part of their briefs and so the surge in UK dog funds does seem to reflect a more challenging environment for equity income managers who have typically been underweight basic materials and energy companies.

“These have bounced back in share price terms on the back of a recovery in commodity and oil prices but are less reliable dividend payers and so many income managers have lagged as a result of being underexposed to them.”

Mr Barnett and his former colleague Neil Woodford – who has suffered similar performance issues – both maintain their relatively contrarian approach to UK equities, though. The pair are more focused on UK domestic stocks that have lagged the globally-focused UK large-cap companies whose revenues are inflated due to weaker sterling.

 

Mark Barnett's recent performance:

Fund/IndexTotal return 01/07/2015-30/06/2016 (%)Total return 01/07/2016-30/06/2017 (%)Total return 01/07/2017-30/06/2018 (%)Three-year cumulative return (%)Five-year cumulative return (%)
Invesco Perpetual Income-0.8411.67-3.169.6737.3
Invesco Perpetual High Income 0.6611.65-2.2112.4541.59
Invesco Perpetual UK Strategic Income -1.229.85-1.519.0741.88
FTSE All-Share index0.9316.799.0229.9850.52
IA UK All Companies sector average-4.620.049.0727.555.44

Source: FE Analytics to 30/06/2018

 

Elsewhere, the report said the global equity space remained the most likely to house 'dog funds'. There were 19 in total, and like the UK equity funds, these were more likely to have income as an objective.

“The greatest returns in recent years from global equity markets have come from growth stocks in areas like technology and new media, where dividends are not a notable feature,” the report said.

There were 10 European Equity dog funds but no global emerging markets equity funds included in the report.

There was a change in fortunes for US equity funds, Bestinvest said. Two years ago, the report was dominated by US equity managers struggling to beat the benchmark, but the analysis shows more are now finding it easier. The report named only four US equity funds – Fidelity American Special Situations (GB00B89ST706), Threadneedle US Equity Income (GB00BZ563P30), Allianz US Equity (GB00B4N1GS74) and JPM US Equity Income (GB00B3FJQ599).

Overall, there were 58 'dog funds' included in the report, up from 26 six months earlier, however report author and Bestinvest managing director Jason Hollands called for investor patience – particularly with income fund managers who have had to avoid the growth areas of their market.

He added: “There are numerous reasons why a fund might hit a period of relative underperformance and so it is important to delve deeper before deciding to switch and move your cash elsewhere.

“In some cases, bad decision-making is at fault, and the case to move on makes sense, but in others a previously sound investment process or an agreed mandate may be out of favour with recent market trends, in which case some patience is required.”