Covering all the bases in Henley

Invesco Perpetual was formed in December 2000 after a merger between Invesco, a subsidiary of US fund management giant Amvescap, and Henley-based Perpetual. The combined group now has £21.9bn under management in a range of onshore and offshore funds, with 32 fund managers working out of its Henley office. The latest fund to launch is the Distribution fund, which is currently in its offer period and attracting considerable interest.Invesco Perpetual is a firm with not one but two impressive pedigrees. It was formed after the merger in 2000 of Invesco, the UK arm of a US fund management giant, and Perpetual, the Henley-based über-boutique that routinely swept the board at fund management awards in the mid-1990s.
With a few notable exceptions, the group’s funds have continued to perform well, with 18 out of 31 funds in the first or second quartile of their respective sectors over three years, rising to 25 out of 34 funds over one year.
Chief investment officer Bob Yerbury is clear about the Invesco Perpetual creed: “We are trying to make money for our clients.” He says the firm’s focus is on absolute rather than benchmarked returns, though he admits that in certain situations it may take time for returns to come through.
Yerbury adds: “Our philosophy is very much a belief in active fund management – in both equities and bonds. Talented managers can add value.”
Richard Philbin, associate director, fund of funds at Isis, says: “We hold the Invesco Perpetual Monthly Income Plus and Corporate Bond funds because Paul Read and Paul Causer [who co-manage both funds] are the best fixed interest managers in the UK.”
Philbin sees the fixed interest team as one of the group’s greatest strengths, though he also likes Neil Woodford’s equity income funds: “You know you are buying a contrarian, value-driven fund. He had problems in the late 1990s because he didn’t want to invest in technology, but in the past three years he has come back with a vengeance.”
Advisory & Brokerage Services director Tony Lanning says his firm’s model portfolio features Woodford’s Income and High Income funds alongside the Corporate Bond fund. In Lanning’s view, a key strength for Invesco Perpetual is its brand and distribution: “Most clients have probably held a Perpetual Pep or Isa at some point and they are unlikely to have been disappointed by it.”
He also cites the managers’ high degree of autonomy: “Though Bob Yerbury is hands-on, they don’t have to do what he says. Conviction is important, and the fact that Neil Woodford didn’t change his view on technology even when it looked wrong is good.”
While Philbin’s and Lanning’s praise is reserved mostly for the group’s UK managers, Yerbury is keen to stress the good performance of Invesco Perpetual’s International Equity and Global Smaller Companies funds, as well as its in-house funds of funds. “I am particularly pleased with these as they reflect the efforts of the whole team – UK, European, Japan and US,” he says.
At the time of the merger, Invesco’s recent performance was better than Perpetual’s. The late 1990s bull run suited the former’s growth style more than the latter’s philosophy, which focused more on valuation. But Yerbury thinks the three-year bear market has shrunk the gulf between the two styles: “Valuation is important in deciding the merits of any investment, but that idea got lost in the late 1990s. Now growth investors will all talk about reasonable prices.”
Last year the group consolidated its fund management functions in Henley, moving its remaining managers out of its London office. Lanning sees this as a good move: “Henley is nicer than London. It is a more comfortable working environment and the managers want to be there.”
So with the market now more focused on valuation, and the managers all based in Henley, is the firm more Perpetual than Invesco? Lanning thinks so: “There have been some successes from Invesco, such as Graham Kitchen on the Income & Growth fund, but it feels like Perpetual when you go there.” Philbin says: “One style will tend to dominate another, and in the last few years the market has favoured the Perpetual style.”
Read and Causer are old Henley hands, and their Corporate Bond fund is the group’s best performer in absolute terms over three years, with a return of 24.13%. It also sits at the top of its sector over both one and three years. Yerbury says: “The managers can go wherever they think the best opportunities lie, and their long-term record shows they are adept at doing that. Since October 2002, they have felt the best opportunities are in sub-investment-grade, although if they start to see high-yield becoming overpriced or defaults increasing, they will up the average credit rating. At present, it is BBB, which the managers feel offers the best combination of yield and risk in the current climate.”
Another fund near the top of its sector over one year is Ed Burke’s super-concentrated UK Aggressive fund, with a spectacular return of 73.57%. The fund reaches its third birthday in July, but Yerbury says: “I just hope buyers are not annualising that one-year return. The fund has had a super period and has been in the sweet spot of the market. But our outlook for mid and small-cap stocks is more muted than last year, so I wouldn’t anticipate another 73% return.”
With just 20-25 stocks, the fund is unlikely to follow a steady performance path. Philbin says: “The UK Aggressive fund has done very well, but it’s a bit too spicy for us.”
Indeed, the aggressive model can do spectacularly well or spectacularly badly, as illustrated by the group’s US Aggressive fund – the worst performer over three years, and rooted to the bottom of its sector with a loss of 69.32%. Yerbury says: “This fund used to be called US Growth, and it was very ‘growthy’. It had a high TMT weighting and did very well up to March 2000; then it got absolutely clobbered in the downturn. Now we have a rebuilding job to do. It is no longer run out of the US and will be managed more according to the Henley philosophy, on fundamental lines.”
The fund has fared better over one year, and is in the first quartile of its sector with a return of 26.99%.
But the one real blot on Invesco Perpetual’s copybook is the European Growth fund. Bottom of its sector over three years and still fourth-quartile over 12 months, the picture is even worse over four years. The history of the fund is well documented. It was run throughout the late 1990s with fabulous success by Rory Powe, who ploughed more and more money into small-cap technology stocks and was roundly hammered when the bottom fell out of the tech market.
However, in Lanning’s view, what happened next was worse. Powe left the company and was replaced by Alister Hibbert. Lanning says: “I feel quite strongly that the way they handled European Growth after Powe was wrong. Hibbert changed the fund dramatically and made it much more of a core fund. Our clients, who bought the fund knowing it was higher-risk, had lost out in the bubble and now had no chance of making up the lost ground.”
Philbin was never a fan of the fund: “Its risk/reward profile never suited anything I was doing.” However, it now has another new manager, Stephanie Gerrard, who has been at the helm since July last year.
The latest fund to come out of the Invesco Perpetual stable is the Distribution fund, currently nearing the end of its launch period. A 60:40 fund (see cover story, page 26), it draws on the expertise of Read and Causer on the bond side and Woodford on the equity side. Yerbury says: “Many people have too much in equities. Something more balanced, managed by a good team, is a compelling story. The tax issue is not the main point.”
The Distribution fund forms the cornerstone of Perpetual’s Isa season offerings, though it is taking an income theme in general, with the Corporate Bond and equity income funds also being marketed on the back of their strong performance.
Although Amvescap, Invesco Perpetual’s US parent, was implicated in the recent market timing scandal, Yerbury says it is very much “business as usual” in the UK. So investors can expect more solid performance, with occasional flashes of brilliance and disappointment.
Lanning says: “What they are good at, they are very good at. They have the bases covered in the areas that matter.” Philbin agrees: “Invesco Perpetual have good funds and good managers. Ignore them at your peril.”

UK unit trusts/Oeics 10/2/03 12/2/01 IMA
Invesco Fund Managers 9/2/04 9/2/04 sector
% Chg Rank Qrtl Mean % Chg Rank Qrtl Mean
Asian 41.06 19/62 2 39.38 3.03 23/58 2 1.95 Far East Excluding Japan
Corp. Bond 11.21 1/81 1 2.58 24.13 1/67 1 14.39 UK Corporate Bond
Emerg Countries 49.71 6/24 1 46.64 3.99 10/19 2 6.95 Global Emerging Markets
Europ High Yd 29.52 1/44 1 4.14 0.97 31/37 4 6.62 Global Bond
Europ Small. Cos 42.60 12/14 4 52.54 -39.05 13/13 4 -23.44 European Smaller Cos
European Equity 44.02 5/101 1 36.76 -17.04 13/84 1 -23.90 Europe Excluding UK
European Growth 33.69 83/101 4 36.76 -38.00 84/84 4 -23.90 Europe Excluding UK
Glbl Dynam Theme 27.13 67/161 2 27.50 -46.13 129/131 4 -27.39 Global Growth
Global Bond 6.88 10/44 1 4.14 16.95 3/37 1 6.62 Global Bond
Global Sm Cos 48.10 4/161 1 27.50 0.81 3/131 1 -27.39 Global Growth
High Income 32.16 22/76 2 30.54 9.92 5/66 1 -7.89 UK Equity Income
HK & China 50.16 5/62 1 39.38 4.56 17/58 2 1.95 Far East Excluding Japan
Income & Growth 31.82 24/76 2 30.54 -11.12 42/66 3 -7.89 UK Equity Income
Income 32.88 19/76 1 30.54 8.28 6/66 1 -7.89 UK Equity Income
Internatl Growth 22.07 130/161 4 27.50 N/A – – -27.39 Global Growth
Intl Equity 37.60 16/161 1 27.50 -21.94 32/131 1 -27.39 Global Growth
Japan 19.02 42/64 3 23.57 -25.95 19/59 2 -27.58 Japan
Japanese Sm Cos 43.71 3/7 2 38.91 -18.02 6/7 3 -10.58 Japanese Smaller Cos
Latin America 87.66 1/5 1 65.58 -3.66 2/4 2 -4.36 Latin America
Money 2.18 30/38 4 2.02 8.53 24/34 3 8.23 Money Market
Monthly Inc+ 33.81 10/49 1 21.50 12.84 12/32 2 7.97 UK Other Bond
Pacific 33.89 6/10 3 33.97 3.16 3/10 2 -5.33 Far East Including Japan
Rupert Children’s 34.04 86/298 2 32.95 -25.91 193/247 4 -18.93 UK All Companies
UK Aggressive 73.57 4/298 1 32.95 N/A – – -18.93 UK All Companies
UK Equity 28.21 190/298 3 32.95 -31.89 240/247 4 -18.93 UK All Companies
UK Growth 52.64 18/298 1 32.95 4.45 15/247 1 -18.93 UK All Companies
UK Key Trends 42.62 42/298 1 32.95 -32.56 241/247 4 -18.93 UK All Companies
UK Sm Cos Equity 46.22 55/65 4 56.86 -5.92 19/60 2 -11.68 UK Smaller Cos
UK Sm Cos Growth 74.77 5/65 1 56.86 -6.57 21/60 2 -11.68 UK Smaller Cos
US Aggressive 26.99 5/90 1 18.45 -69.32 73/73 4 -35.88 North America
US Equity 20.39 24/90 2 18.45 -42.65 61/73 4 -35.88 North America
US Smaller Cos 28.42 6/10 3 30.06 -38.46 9/10 4 -24.97 Nth American Smaller Cos
World Gth Ptfl 37.59 10/74 1 29.43 N/A – – -18.23 Active Managed
World Income 30.74 5/98 1 23.12 -1.44 3/76 1 -14.95 Balanced Managed
Shows percentage returns, position in sector, quartile ranking and sector average, bid-bid, net income reinvested, over one and three years to February 9. Source: Standard & Poor’s