Mark Barnett is back. It was announced this week that the fund manager, best known as Neil Woodford’s protégé, is joining boutique investment house Tellworth to launch a UK Equity Income fund.
Barnett has had a pretty rubbish few years: after taking over the running of Woodford’s funds at Invesco, he had to grapple with establishing himself as a manager in his own right while managing billions of pounds of outflows as Woodford loyalists followed the star manager to his new company. Barnett was then caught up in the Woodford collapse and his funds, which owned many of the same stocks as his former colleague, struggled. He was removed as the manager of the two investment trusts he ran and later left Invesco after 24 years at the firm.
If it were me, I’d probably keep a low profile, maybe consider a change of career (maybe no career, depending on how much I’d managed to earn in my decades of fund management). Yet I can also understand why a manger who has had such a torrid time would want the chance to prove himself and show what he can do when given a blank sheet of paper.
Barnett’s background is in UK value stocks, the fortunes of which finally look to be turning around after years of being unloved. Now, then, could be the perfect time for a comeback.
A boutique firm may well suit Barnett over an investment behemoth like Invesco, particularly if his aim to show what he's really all about. But with a raft of established equity income funds already available, and Barnett's less-than-perfect track record still fresh in many minds, will investors take the bait?
Don't Wait for Rates
I used to work with a woman who had a tracker mortgage with an interest rate that was the Bank of England’s base rate minus 0.5%. When she’d taken out the mortgage and interest rates were 3 or 4%, it had seemed a decent deal. I’ll never forget the skip in her step the day the Bank of England slashed interest rates to 0.5%. Suddenly the interest rate on her mortgage was zero.
Rock-bottom interest rates have unquestionably been bad for savers. A savings account offering 0.1% interest seriously hampers your ability to grow your money, and has likely put many people off from even bothering saving in the first place. But there is one part of the population for whom low interest rates has been a boon – mortgage holders. When interest rates are low, homeowners can chip away at their loans more quickly and the total amount paid back over the mortgage term is significantly lower than it would have been when rates were 5, 6, or 10%. So what if the Bank of England cuts rates to zero or even, like some of our continental cousins, into negative territory?
These days, you’ll not find a mortgage that tracks below the base rate – banks aren’t that silly. But you will find plenty that offer to track base rate plus, say, 1.2% or 1.5%. So, while it’s not quite a case of your bank paying you to have a mortgage, for many homeowners it makes the prospect of overpaying or even clearing their debt ahead of time much more likely. (We’ve had the debate before, of course, as to whether that is mathematically the best option so I won’t re-tread old ground).
Those looking to remortgage at the moment might be wondering whether to hold off in the hope that rates could move down even further. I'd suggest that with base rate at 0.1%, it's probably not worth waiting.
Income on my Mind
You might have noticed we’ve had income investing on our minds at Morningstar HQ this week. Getting a reliable income stream is one of the most common investment goals out there, particularly for retirees who need a substitute for a salary.
And while finding an income isn’t as easy as it used to be, it’s heartening to see just how many investment options there are out there and how diversified your portfolio can be while maintaining an income focus. This week we’ve looked at dividend-paying stocks and investment trusts, tracker funds, bond funds, alternative assets and emerging market debt.
And I was particularly interested to hear a shout out for the good old fashioned annuity from Morningstar’s Dan Kemp. Annuities used to be the go-to product for retirees, offering a guaranteed income for life in exchange for your pension pot. But as low interest rates have impacted the income they can deliver and pension freedoms have made it possible to stay invested through retirement, annuities have fallen massively out of favour.
But actually, for those who don't want to spend their retirement doing asset allocation and worrying an unexpected stock market crash could wipe out their plans, an annuity does still have a place.
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