As stock markets have fallen in recent weeks, so have the share prices of most listed companies. However, unquoted companies are not listed on a stock exchange, meaning they are not valued on a daily basis as investors buy and sell their shares. Instead, independent valuers assess the worth of the business at regular intervals.
But at times of volatility, it can be difficult to assess the value of such businesses. Now Invesco has taken the move to announce a 60% reduction across the board of the unlisted holdings in its UK equity funds, including the Income and High Income funds, run by Neil Woodford’s protégé Mark Barnett.
Adrian Lowcock, head of personal investing at Willis Owen, says: “The write-downs on the unlisted stocks are much larger than the falls we have seen in the wider market.” He estimates that the move will knock around 5% off the value of the funds in one go.
However, he says the write-downs are at the lower end of forecasts and are only “a snapshot valuation of the businesses at one point in time. They do not necessarily reflect the long-term value of the companies”.
Juliet Schooling Latter, research director at Chelsea Financial Services, says the move seems “drastic”, pointing out that venture capital trusts (VCTs) – investment trusts that focus specifically on unquoted companies – have only implemented write downs of between 5% and 22%.
She adds: “We understand Invesco’s wish to move away from these assets into more attractive parts of the market, but the amount of write-down is unjustified in our view. While there may be investor appetite for the funds to hold fewer unquoted stocks, I would doubt that investors would want this at the cost of a 5% drop in the value of their investments.”
Negative Rating
The £543 million Invesco High Income fund is rated Negative by Morningstar analysts, who have expressed concerned over the liquidity of the fund’s portfolio. The fund has suffered significant outflows as investors have taken their money elsewhere in recent years, concerned about the prolonged period of underperformance.
Barnett’s association with former star manager Neil Woodford, who he worked alongside for years, also sparked concern when the Woodford Equity Income fund suspended trading last year, as the two funds shared a number of holdings.
The £2.1 billion Invesco Income fund also has a Negative Morningstar Analyst Rating. The two funds were downgraded in November as Morningstar analysts flagged concerns over the growing proportion of the portfolio invested in smaller and unquoted companies. The fund is down 35.5% year to date and has produced annualised losses of 15% over three years. The UK Equity Income category, meanwhile, is down an average of 7.7% year to date, with annualised losses of 8.5%.
Barnett has been working to reduce the funds’ exposure to unlisted stocks in recent months but as money continues to flow out the proportion of the portfolio invested in unquoted companies has remained fairly consistent.
Morningstar analysts expect the proportion of unquoted holdings to fall from 9.2% to 3.7% in the Invesco Income fund and from 8.4% to 3.4% in the High Income fund as a result of the write-down. He adds: "This is a sub-optimal outcome in the short-term, but the exclusion of unquoted stocks should free up Barnett's time to focus on quoted companies, where he has a greater level of expertise."
An Invesco spokesman said: “Given a significant shift in risk tolerance towards illiquid or unquoted assets in the last year, and recent market dislocation and opportunities arising, we have decided it is in the best long-term interests of our clients to dispose of unquoted assets held in our UK equities portfolios.”
