Pressure on high-profile fund manager Mark Barnett has ramped up a notch after he was sacked as manager of Edinburgh Investment Trust (EDIN) following a prolonged period of poor performance.
The trust’s board of directors decided to pull the trigger after questioning Barnett’s investment process, given big share price falls in a number of stocks in the portfolio.
The board said the trust’s portfolio had suffered from a number of stock-specific issues rather than from broad market movements.
Edinburgh Investment Trust it is currently in the bottom quartile of the UK Equity Income sector over one and three years, lagging its FTSE All-Share benchmark substantially over both periods.
In its results for the six months to 30 September, the net asset value (NAV) of the trust fell by 3.1%, compared to a 4.6% gain by its benchmark, the FTSE All-Share Index.
While over the past three years, the trust has delivered a NAV total return of 1.6%, against the total return of the FTSE All-Share 21.7%.
'NOT A COMPLETE SHOCK'
The decision to remove Invesco manager Barnett from his role ‘doesn’t come as a complete shock’, according to AJ Bell head of active portfolios Ryan Hughes, who pointed out that the trust’s board had already signalled they were looking elsewhere.
Barnett will be replaced on the FTSE 250 trust by James de Uphaugh of Majedie Asset Management, another investor with a clear bias towards value investing, meaning while a lot of the stocks will change, the overall style of the portfolio will remain similar.
The appointment of Majedie will also reduce investors’ fees, working out at around a roughly 0.1% cut.
Majedie will receive an annual management fee of 0.48% of the market cap of the trust up to £500m and 0.465% above £500m.
The trust’s board said this ‘represents a significant reduction’ from the current levels of fees paid to Invesco of 0.55% of the trust’s market cap.
BENEFIT OF INVESTMENT TRUSTS
Hughes said the decision to remove Barnett shows one possible benefit of investment trusts over funds.
He explained, ‘While the move is under very different circumstances to Neil Woodford, it does signal that investment trust boards are starting to become more active and more willing to change managers if they aren’t happy with performance.
‘This is one of the advantages of investment trusts, as opposed to funds, and we could see more action like this from trusts.’
Hughes added, ‘The board will be hoping that the move brings more certainty to the trust and helps to narrow the discount from the current 11%.’
READ MORE ABOUT THE EDINBURGH INVESTMENT TRUST HERE
However, the change has been questioned given de Uphaugh has also significantly underperformed against his peers.
According to Citywire, de Uphaugh has delivered a total return to investors of 8.2% over the three years to October 2019, compared to 17.2% for the average fund manager in the UK equity sector.
While Barnett has delivered a return of -4.6% over the same period in the UK equity income sector, in comparison to 14.5% for the average fund manager investing in the same area.
Though Barnett, who has three months’ notice to keep running the trust, could benefit from a ‘Brexit bounce’ - where shares in smaller UK companies rally on a more certain political outlook and Brexit outcome - if the Conservatives win tomorrow’s election.
Conversely, a hung parliament could result in an opposite outcome.
