Investors with money in any of the six Invesco UK Equity Investment Trusts have had a tough time of it. According to research by the Winterflood Investment Trust team, with the exception of Invesco Perpetual UK Smaller Companies, all the funds have considerably underperformed their benchmarks in both NAV and share price terms over the last three years.
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The laggards in question are: Keystone (LON:KIT), Invesco Perpetual Select – UK Equity (LON:IVPU), Edinburgh Investment Trust (LON:EDIN), Invesco Income Growth (LON:IVI) and Perpetual Income & Growth (LON:PLI). They all have a different mandate, but the extent and length of the underperformance raises serious questions about whether there is something wrong with the company’s whole approach.
Invesco is one of the largest providers in the UK investment trust sector with its six UK-focused investment trusts having total assets of £3.1 billion. The team responsible for them consists of eight fund managers and is led by the highly experienced Mark Barnett. Their approach is based on fundamental analysis, with a strong emphasis on valuation.
Collegiate environment
The analysis by Winterflood makes the point that the Invesco UK Equity team work in a collegiate environment, where thoughts and ideas are exchanged, challenged and discussed, but where there is individual accountability and responsibility. Although they are unified by the same long-term investment approach, each has their own unique perspective and management style so the portfolios will differ.
It is only those funds that are run by the same manager that share a significant number of holdings with the Edinburgh Investment Trust and Perpetual Income & Growth (both managed by Mark Barnett) having 82.6% portfolio overlap and Keystone and Invesco Perpetual Select – UK Equity (both run by James Goldstone) having 89.8% overlap. Other than Invesco Perpetual UK Smaller Companies, which obviously invests in the small cap end of the spectrum, the other portfolios typically overlap by 25% to 42%.
There is no in-house style, stock or sector bias, unlike with certain other fund management groups, and when looking for the best opportunities they will search for companies across the full market cap spectrum. Their overriding aim is to identify and invest in fundamentally strong businesses that they believe have the ability to generate growth, earnings and dividends over the long-term.
High active share
The funds all have a high active share, which measures the percentage of the holdings that differ to the benchmark. This ranges from 67.6% for Invesco Income & Growth to 85.9% for Invesco Perpetual UK Smaller Companies. They also vary in terms of the number of different positions with the portfolios having between 42 and 92 stocks.
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Unfortunately this hasn’t helped the performance, as over the last three years – ignoring Invesco Perpetual UK Smaller Companies − they have all lagged behind the FTSE All-Share index in terms of their NAV growth and are ranked towards the bottom of their relevant sectors.
If you have money in any of these funds you must be sorely tempted to cut your losses, but the analysts at Winterflood believe that the experience and pragmatic approach of the management team may be well-suited to the more difficult environment in which the market now finds itself. They also stress that the funds should benefit from greater certainty over the Brexit process, although it is still unclear when this will occur. Contrarian investors might well view the larger than normal discounts as a buying opportunity.