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Barnett's trust more than doubles FTSE All Share rise

Barnett's trust more than doubles FTSE All Share rise

Mark Barnett underlined why he was asked to fill Neil Woodford's shoes with strong performance on his Perpetual Income and Growth investment trust.

Citywire AAA-rated Barnett, who was named head of UK equities at Invesco Perpetual following the departure of Woodford earlier this year, registered a net asset value (NAV) return of 18.8% over the 12 months to the end of March, beating the 8.8% rise by the FTSE All Share.

Over three years the £900 million trust, which is on a 0.3% discount, has seen its NAV grow by 65% versus a 33% rise by the benchmark.  

A number of holdings contributed to performance over the last 12 months with travel firm Thomas Cook among the standout performers.

'The company [Thomas Cook] announced a fund raising via a rights issue early last year, which was well received by the stock market and put the company on a sounder financial footing,' Barnett (pictured) told investors.

'More recent news from the company has confirmed an improved performance at the operating level, benefiting from new revenue growth, cost cutting, web integration and profit improvement programmes.'

Barnett's pharmaceutical call was also rewarded, with AstraZeneca among the pacesetters.

'Its drug pipeline has generated a number of pieces of good news and an increased rate of drug approvals by the US Food and Drug Administration (FDA) is positive for the sector as a whole,' Barnett explained.

Other drivers of performance included the fixed line telecoms sector.

'BT has continued to deliver results above expectations, with profit growth driven by cost-cutting as well as by the company's dominant position in fibre and broadband,' Barnett said.

'The latest results were also accompanied by a 13% rise in the dividend and a comment that its recently introduced BT Sport package had made a "confident start".

'[Meanwhile] 'TalkTalk Telecom initially saw its shares underperform on fears of the impact that BT might have on its broadband strategy, but subsequently saw its shares rise very strongly on confirmation of accelerating revenue growth.'  

Weak spots

On the flipside Rolls-Royce was a hindrance after it issued its first profit warning in a decade.

'This is largely a result of defence spending cuts but the company claims that this is a pause, not a change in direction, and that growth will resume in 2015.'   

Ladbrokes also struggled to keep up. 'The UK Budget led to a fall in value of the holding in Ladbrokes, as a new duty on fixed odds betting terminals was unveiled,' Barnett outlined.

'This followed a warning from the company earlier in the period that profits would not match expectations, blaming challenging trading in its online business.'

Barnett made a number of new investments over the year. BP, Betfair, Bunzl, CLS, Derwent London, Horizon Discovery, NewRiver Retail, Nimrod Sea AssetsMacau Property and Shaftesbury all feature among the new positions.

At the same time he sold out of Carnival.

Outlook

Barnett expects 2014 to be challenging after a stellar performance by equities in 2013.

'Despite the well publicised improvements in economic growth in the UK and US economies, the current valuation of the market represents a level which reflects this optimism and which may struggle to be maintained if the pace of earnings growth does not accelerate,' he said.

'Meanwhile, the outlook is likely to remain challenging for the foreseeable future due to a combination of elevated valuations and an environment of continued flat corporate profit growth - the recent earnings season was notable for the number of profit warnings from large corporates.'

Barnett said this, coupled with the winding down of quantitative easing, emerging market concerns and political uncertainty in the UK and tension caused by the Ukrainian/Russian situation, means equities are unlikely to repeat 2013's performance.

However, he still believes there are 'pockets of value' to be found.

'The company's strategy remains largely unchanged from the recent past, with a strong preference for companies that have proven ability to grow revenues, profits and free cash flow in this low growth world, coupled with management teams that are fully cognisant of the need to deliver sustainable, long term, dividend growth.'

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