The Invesco Perpetual High Income fund, the £13 billion vehicle that was managed by Neil Woodford until three weeks ago, has been drummed out of the IMA UK Equity Income sector for not providing a high enough yield.
For a fund to be retained within that sector it must deliver an income yield 10 per cent higher than the FTSE All Share index – so if the index yields 3 per cent, then a fund within the IMA UK Equity Income sector must yield 3.3 per cent. This criterion is applied over three-year rolling periods.
The yield of the Invesco Perpetual High Income fund is currently 3.23 per cent.
Darius McDermott, managing director at Chelsea Financial Services commented: ‘I am not really surprised by this. The investment style of the fund, under Neil Woodford, and now under his successor, Mark Barnett, is to buy yielding companies yes, but also to buy companies that they think will grow on an absolute return basis. They would not buy a company just for yield if they didn’t like it otherwise.’
The High Income fund will now be part of the UK All Companies sector.
McDermott added that the reclassification of the fund could mean that it struggles to stay near the top of its new peer group.
He explained: 'The All Companies sector has over 300 funds, whereas the Equity Income sector has 100. The All Companies sector will have more funds in it which invest in mid and small caps. The Invesco Perpetual High Income fund would be underweight mid-caps relative to most other funds in that sector, and investors should bear in mind that small and mid-cap sectors are where the growth has been.’
Invesco Perpetual also confirmed to What Investment this afternoon that the Invesco Perpetual Income fund, another former Woodford vehicle now managed by Mark Barnett, is ‘likely’ to be dropped from the IMA UK Equity Income sector later in 2014, as it has a similar investment style to the High Income fund.
The same fate is likely to befall Invesco Perpetual Strategic Income, a fund which Barnett managed before assuming control of the suite of Woodford funds and which he still runs.
The reclassification of the High Income fund draws attention to its failure to achieve its aim of delivering a market-beating yield and comes at a bad time for Invesco Perpetual. According to figures from FE Trustnet, the fund has shed an estimated £1.5 billion over the past six months, driven by the announcement of Woodford's departure in October.
Invesco Perpetual Income has shed £2.6 billion over the past half-year, more than any other fund in any sector.
However, the twin funds remain among the largest equity vehicles available to UK investors, with some £22 billion between them.