Mark Barnett has been sacked from running the Edinburgh Investment Trust (EDIN) after more than three years of underperformance. The trust will also lower its fees and move to a tiered charging structure, in a major shake-up by the Board.
It comes just weeks after the funds run by the protégé of Neil Woodford were downgraded by Morningstar analysts amid performance and liquidity concerns.
Glen Suarez, chairman of the Edinburgh Investment Trust, said he was “disappointed by another weak result” as the trust put out its interim results.
“Since 2018, the Board has worked hard to understand the causes of this underperformance, cognisant of the long-term investment objective of this Company and the recent trends in the UK equity market," he added.
After an extensive review and selection process, the Board has decided to remove Barnett from managing the fund. He will be replaced by James de Uphaugh, chairman and chief investment officer of Majedie Asset Management. Surez praised Majedie as an “independent, active equity investment management firm with proven expertise in UK equities”. Uphaugh co-manages the Majedie UK Equity fund, which has a Neutral Morningstar Analyst Rating; he is expected to take up his role at the start of 2020.
Barnett has run Edinburgh Investment Trust since 2014, when he took the reins from Woodford. In the six months to 30 September, the net asset value of the trust fell 3.1% while its benchmark, the FTSE All Share, returned 4.6%, according to the interim report. Over three years the trust has returned 1.6%, compared to 21.7% from the FTSE All Share.
After a poor run of performance, the trust currently trades at an 11% discount to its NAV and has a Neutral Morningstar Analyst Rating – it was downgraded from Silver in November.
Morningstar analyst Peter Brunt said: “Mark Barnett has managed this strategy since 2014, using broadly the same long-term, high-conviction and unconstrained approach that he has applied on other vehicles since 1999, all at Invesco. [But] the increasing number and nature of stock-selection issues over a prolonged period have raised concerns about the manager’s implementation of the investment approach.”
Tiered Fees
Edinburgh Investment Trust will reduce its annual fee of 0.55% to 0.48% and move to a tiered charging structure, whereby the annual charge falls slightly to 0.465% on any assets above £500 million. A recent review of various types of fund fee structure by trade body CFA UK found that such tiered charging models are among the fairest and easiest to understand for investors.
Suarez added: “This has been a disappointing period for shareholders. I am confidence that the new arrangements will position the Company favourably for the future.”
In a review of the portfolio’s recent performance, it said car auction firm BCA Marketplace and broadband business KCOM were the top contributors, as both companies have recently received private equity bids. A high exposure to tobacco stocks Altria, British American Tobacco and Imperial Brands had proved challenging, however, as sentiment towards the sector has been hit by fears around regulation. Troubled litigation finance company Burford Capital was “the standout detractor to returns”, having previously been a strong performer. A short attack on the stock hit the stock hard this summer and the shares are yet to fully recover.
The Board of the Perpetual Income & Growth (PLI) investment trust, also run by Barnett, acknowledged the decision by the Edinburgh Board but is sticking with the manager for now.
The trust made clear its concerns about its poor run of performance in its half year report in November but said there has been an improvement over the past three months. Richard Laing, chairman of Perpetual Income & Growth, said now was not an appropriate time to review management arrangements, with a General Election just hours away.
“However, the Board has had a number of discussions with the management at Invesco about continuing poor performance and about the processes around individuals portfolio managers and will be closely monitoring the situation,” he added.
