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Financial Times: Invesco opts for mega-caps

By Daniel Thomas
Published: June 21 2007 03:00 | Last updated: June 21 2007 03:00

Invesco Perpetual launched a new share class for its UK Strategic Income Fund at the end of May, which has opened it up to all retail investors for the first time in its 36-year history.

The UK equity fund, run by Mark Barnett, was previously open only to investors with more than £250,000 to invest, but is now available to all investors with an initial £500 lump sum.

The fund rose by 1.6 per cent during the three months to March 31, compared with the FTSE All-Share index, which rose by 2.9 per cent. This placed the fund in the third quartile of its peer group, the IMA UK Equity Income sector.

Mr Barnett said the performance reflected a growing exposure within the fund to mega-cap stocks, which had not performed as well as companies with lower market capitalisations.

“We have moved into large cap stocks such as British Telecom, Vodafone and GlaxoSmithKline, which we see at a big valuation discount,” said Mr Barnett. “We are always looking for the big dividend companies, which provide a regular income while we wait for them to be re-valued higher. We see this as being paid to wait for the re-rating.”

He pointed out that big-cap stocks were normally large, global businesses and so have defensive qualities such as diversified earnings.

One of the best decisions made for the fund, said Mr Barnett, was the investment in water utility stocks. These, he said, had performed very well.

He also pointed to investments in British Energy, Tesco and ICI as successful moves. “ICI has done particularly well after the take-over bid news,” Mr Barnett added.

On the flip side, Mr Barnett said there had been a number of disappointments, including oil stocks such as BP and Shell and the pharmaceutical company GlaxoSmithKline.

He added that an investment in Tate & Lyle, the sugar company, had weighed most on overall performance. The company was hit in January following supply problems leading to slower growth from its low-calorie sweetener Splenda.

“It is difficult to lose money at the moment but these have not done as well as we’d hoped and the money could have been better served elsewhere.”

But these under-performers areas are the ones that Mr Barnett expects to be the next growth drivers.

“Oil stocks in particular are going to be one of the next big areas and we will continue to hold BP and Shell.

Both are looking cheap at the moment, and we think BP could create additional value through a change in corporate strategy. They have to do something to explain to the market why we should buy them.”

Mr Barnett added that he hoped to take advantage of future merger and acquisition targets. ICI, he said, had already emerged as a target and he predicted further mega-cap takeover moves.

Ultimately, Mr Barnett said, there had been a few underperforming stocks in the fund’s portfolio but he said that these should come good in the next year. “Patience is a virtue in an investor. The mega-cap stocks are undervalued by the market and offer good long-term relative and absolute value.”

Daniel Thomas

Copyright The Financial Times Limited 2007 and its also non-profit sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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