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Investment Trust Watch: Barnett and Woodford’s battle at the bottom

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Investment Trust Watch: Barnett and Woodford’s battle at the bottom

In the immediate aftermath of Neil Woodford's shock departure from Invesco Perpetual, journalists were quick to compare the performance of the UK's most famous fund manager with his successor at Invesco, Mark Barnett.

Four years on and the comparison has taken on a different complexion. Both managers have endured a difficult 12 months, denting their strong long-term track records, and find themselves towards the bottom of the performance tables over that period.

In the open-ended funds world, Barnett just has the edge over Woodford over the last year, though it's a hollow victory.

His £760 million Invesco Perpetual UK Strategic Income fund is up 5.7%, while the £5.3 billion Income fund and £10.6 billion High Income fund he took over from Woodford are up 3.4% and 3.1% respectively. All three are in the bottom 10% of funds in the Investment Association’s UK All Companies sector over the year.

Woodford is meanwhile rooted to the bottom of the UK Equity Income sector, with his £9.3 billion Woodford Equity Income fund down 2.6% over the same timeframe.

But the picture is worse for Barnett’s investment trusts. Including dividends, shares in the Edinburgh (EDIN) investment trust he took over from Woodford are down 1.9% over the last 12 months, hurt both by net asset value (NAV) returns that have lagged rivals and a widening of the discount to NAV to its highest level in nine years.

Shares in his smaller Perpeutal Income & Growth (PLI) trust are up just 2.4%, with their 8.5% discount to NAV more in line with their 12-month average.

Edinburgh is one of only two UK Equity Income trusts to have lost investors money over the last year, alongside Gervais Williams and Martin Turner’s small Investment Company (INV).

The shares’ 8.9% discount to NAV at yesterday’s close is meanwhile the widest since the onset of the financial crisis in late 2008.

It’s also almost double the 4.7% average discount at which the shares have tended to trade over the last year, giving the shares a Z-score of -2.3, placing them firmly in the list of ‘cheap’ investment trust shares compiled by Numis Securities.

Just to recap, a Z-score is a measure used by analysts to put a premium or discount on an investment trust into the context of its previous 12 months. Roughly speaking, an investment company or trust with a Z-score of -2 or below is ‘cheap’ while a score of 2 or more is viewed as expensive.

'Cheap' trusts Share price premium (-discount) to NAV % 12-month average premium (-discount) % Z-score
Qannas Investments (QIL) -28.4 -3.1 -3.8
RM Secured Direct Lending (RMDL) 3.2 4.3 -3.3
Masawara (MASA) -40.4 -33.5 -3.3
Empiric Student Property (ESP) -3.0 5.4 -2.8
CATCo Reinsurance Opportunities Fund (CAT) -13.1 -0.5 -2.6
HICL Infrastructure Co (HICL) 4.0 11.4 -2.4
Edinburgh IT (EDIN) -8.9 -4.7 -2.3
Tritax Big Box REIT (BBOX) 3.5 9.8 -2.3
Pershing Square Holdings (PSH) -24.0 -18.0 -2.3
Sanditon Investment (SIT) -3.3 0.3 -2.3
HgCapital Trust (HGT) -11.6 -6.1 -2.0
NB Distressed Debt - Extended Life (NBDX) -15.9 -10.4 -1.8
Keystone IT (KIT) -12.2 -10.6 -1.8
NAXS Nordic Access Buyout (NAXS) -18.4 -12.8 -1.8
Pershing Square Holdings £ (PSH £) -23.9 -18.6 -1.7

Source: Numis Securities 28/9/17

While Barnett has stamped his mark on the open-ended funds and investment trusts he took over from Woodford, their fates have been tied together to some extent by the large cross-over in the stocks they own.

Both managers have been hit hardest by the collapse in the shares of doorstep lender Provident Financial (PFG) and also hurt by the ongoing difficulties of outsourcer Capita (CPI) and retailer Next (NXT).

But not all Barnett’s problems have been shared by Woodford. While Woodford sold his position in BT (BT) last summer, Barnett kept his and was hit by the big fall in the shares at the start of the year after the telecommunications group’s £530 million Italian accounting scandal was exposed.

And Barnett’s Edinburgh investment trust has been more exposed to the dip in tobacco stocks sparked by US regulators’ plans to limit the amount of nicotine allowed in cigarettes. 

Woodford has been selling down his once heavy holdings in tobacco stocks, with Imperial Brands (IMB) now the only remaining cigarette maker in his flagship fund, albeit the second largest holding.

Tobacco stocks meanwhile make up three of Edinburgh’s top 10 holdings, with British American Tobacco (BATS) the largest, at 8.2% of the fund.

But there are other areas where the trust has avoided some of the problems affecting its former manager. Shares in Allied Minds (ALML) have been in freefall this year, and although Barnett, like Woodford, is a backer in his Income and High Income open-ended funds, Edinburgh is not an investor.

Touchstone Innovations (IVO) operates in a similer field to Allied Minds, commercialising university scientific research. Its fall hasn’t been quite so precipitous, with the shares having lost a third of their value over the last 12 months. As with Allied Minds, Barnett owns the stock, also backed by Woodford, in his Income and High Income funds but not in the Edinburgh trust.

If investors believe the last 12 months will prove just a blip in an impressive long-term investment track record, now could be a good time to buy.

At the very least, the discount on his Edinburgh trust means it could be more alluring than his open-ended funds. The shares’ de-rating has boosted their yield to 3.7%, above both the 3.3% for his High Income and 3.1% for his Income funds, kicked out of the UK Equity Income sector in 2014 for not yielding enough.

'Expensive' trusts Share price premium (-discount) to NAV % 12-month average premium (-discount) % Z-score
Templeton Emerging Markets (TEM) -9.8 -13.3 4.6
Invesco Asia (IAT) -8.2 -12.0 3.5
India Capital Growth (ICG) -8.9 -18.0 3.4
BlackRock Latin American (BRLA) -10.3 -13.9 3.1
JPMorgan Chinese (JMC) -10.0 -14.2 3.0
Terra Catalyst (TCF) -38.8 -56.5 3.0
Hansa Trust A (HANA) -28.6 -32.2 2.8
Premier Energy & Water - Ords (PEW) 1.8 -6.4 2.8
Aberdeen Emerging Markets (AEMC) -10.7 -13.6 2.8
Pantheon International - Redeemable (PINR) -18.3 -24.9 2.7
Lazard World Trust Fund (WTR) -5.8 -12.0 2.6
BlackRock Emerging Europe (BEEP) -4.8 -10.0 2.4
European Real Estate (ERET) 9.8 -17.4 2.3
TR Property (TRY) -3.1 -10.4 2.2
Vinaland (VNL) -14.8 -19.9 2.2

Source: Numis Securities 28/9/17

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