Perpetual High Income Fund

...anxious when the acquisition of Perpetual Investment Management was announced by AMVESCAP (owners of INVESCO) because of the implications for the fund. I was worried that the star manager Neil Woodford might leave Perpetual because of the takeover. Fortunately AMVESCAP and Perpetual have agreed on good terms, AMVESCAP is going to let Perpetual continue with its current fund management style and remain in the Henley-on-Thames offices. I don't think ...
...another 5 years.

Another big disadvantage of this fund is the 5.25% initial charge that must be paid on purchase of the fund, but in my view it is worth paying for long-term outperformance. I do view this fund as a good core holding for any portfolio.  ... more

I invested in this fund in september 1998 for my final PEP allowance before PEP's were abolished by the New Labour government. I had been tracking this fund before investing in it. At the time of investing the financial markets were in turmoil caused by the Asian financial crisis, the collapse of the large hedge fund Long Term Capital Management and currency devaluations in emerging markets. I think interest rates in the UK were also on the rise at the time. My strategy in buying this fund was to try and make a purchase close to the bottom of the UK market and get a good price. I didn't quite manage to make a purchase at the absolute bottom of the market but was close making a purchase at around 138p per unit.

The fund pays a dividend yield that aims to be in excess of the yield on the FTSE All Share index. The objective of the fund is to provide an above average dividend and above average dividend growth because it is in the UK Equity Income sector. The yield on this trust is around 3.16% at the time of writing. I decided to opt to re-invest the dividends because I had seen studies that by doing this returns could be enhanced over the long-term due to a compounding effect. Re-investing dividends over the long-term can also help to reduce the volatility of an investment.

INVESCO-Perpetual High Income has been managed by Neil Woodford for around 13 years since its launch in 1988. Neil Woodford is a highly influential fund manager who was involved in releasing the truth about the Biotech stock market disaster British Biotech. I admire the way Neil Woodford has managed this trust by sticking to what he believes in an not going with the crowd. This was apparent when the fund suffered a period of underperformance against the UK market in the TMT stock boom of late 1999 and early 2000.

I decided to buy some more units in the fund in September 1999 for my first ISA allowance. Unfortunately I have not made such a profit on these units. I bought in at a price of 188p.

INVESCO-Perpetual High Income is one of the largest UK unit trusts at around £2.6 billion in size. Many investment analysts have stated that £2.6 billion is not a great size for a fund as it makes the fund more unwieldy and cumbersome to manage. Trading in smaller and medium sized companies becomes more difficult with a large fund. The advantages of a large fund include economies of scale in the running costs involved and a large team of analysts generating good quality research.

The price of the fund now stands at around 210p, which is a 52% return on my initial investment. The fund has recently undergone a period of outperformance against the UK stockmarket in a particularly difficult time returning 16% over the last year against a 3% loss on the FTSE All share index (according to statistics from Standard & Poor's Micropal). I definitely view the fund as a core holding in my portfolio.

The fund has also produced total returns (with dividends re-invested) in excess of the FTSE All-Share over periods of 5,7 & 10 years.

The volatility of the INVESCO-Perpetual High Income fund (which is the standard deviation of the unit price over 36 months) is 4.7, this compares with a volatility of 4.1 for the FTSE All-Share Index and the UK Equity Income sector average of 4.2. This volatility measure shows that the fund is only slightly above average risk for an investment. The fund is a good long-term investment, it is ranked second in the UK Equity Income sector over 10 years, turning £1,000 into £4,150. The major holdings in the fund include Lloyds TSB at 4%, BAT at 4%, Philip Morris at 3%, Royal Bank of Scotland at 3% and Abbey National at 3%. The geographical allocation of the fund is 94% invested in the UK, 4% invested in the USA, 3% in Ireland and -1% in cash (borrowed cash in the form of a loan, also known as gearing). The asset allocation is 95% in equities, 6% in Fixed Interest and again -1% in cash. The largest sector the fund is invested in is the financial sector (eg. banks, insurance and property) at 30%.

I was anxious when the acquisition of Perpetual Investment Management was announced by AMVESCAP (owners of INVESCO) because of the implications for the fund. I was worried that the star manager Neil Woodford might leave Perpetual because of the takeover. Fortunately AMVESCAP and Perpetual have agreed on good terms, AMVESCAP is going to let Perpetual continue with its current fund management style and remain in the Henley-on-Thames offices. I don't think Neil Woodford will be deserting the fund for at least another 5 years.

Another big disadvantage of this fund is the 5.25% initial charge that must be paid on purchase of the fund, but in my view it is worth paying for long-term outperformance. I do view this fund as a good core holding for any portfolio. 

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