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Invesco Perpetual Income & High Income funds

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wombat42_2
wombat42_2 Posts: 1,312 Forumite
in Savings & investments
Just trying to understand the difference between the two funds. They are both run my Neil Woodford. Is the high income fund higher risk or what ?
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  • munk
    munk Posts: 993 Forumite
    http://www.morningstar.co.uk/UK/comparefund/default.aspx?lang=en-GB

    :)

    Not much in it like you say, slightly higher risk with slightly higher profits on the high income fund. Looking at the portfolio breakdown for the two funds in more detail might give you an idea how they differ.

    EDIT: Prospectus is here also:

    invesco perpetual simplified prospectus

    From that doc, here's the objectives for the two funds:

    High Income:
    The Fund aims to achieve a high level of income,
    together with capital growth. The Fund intends
    to invest primarily in companies listed in the UK,
    with the balance invested internationally. In
    pursuing this objective, the fund managers may
    include investments that they consider appropriate
    which include transferable securities, money market
    instruments, warrants, collective investment
    schemes, deposits and other permitted
    investments and transactions as detailed in
    Appendix 2 of the most recent Full Prospectus.

    Income:
    The Fund aims to achieve a reasonable level of
    income, together with capital growth. The Fund
    intends to invest primarily in companies listed in
    the UK, with the balance invested internationally.
    In pursuing this objective, the fund managers
    may include investments that they consider
    appropriate which include transferable securities,
    money market instruments, warrants, collective
    investment schemes, deposits and other
    permitted investments and transactions as detailed
    in Appendix 2 of the most recent Full Prospectus.
  • wombat42_2
    wombat42_2 Posts: 1,312 Forumite
    Thanks. What would be your choice of UK equity income fund ? Would you pick one of those two ?
  • YorkshireBoy
    YorkshireBoy Posts: 31,541 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    wombat42 wrote: »
    Thanks. What would be your choice of UK equity income fund ?
    Check out past performance at:
    http://www.citywire.co.uk/Funds/Home.aspx

    Whilst there have been better performances from other funds over the last 3 months/12 months, these two IP funds have been consistent performers over the last 3/5/10 years (High Income=top 3, Income=top 5) - probably due to Woodford's 'defensive' approach.
    Would you pick one of those two ?
    When I started my equity ISA at the end of 2006, the High Income fund was my first purchase - and I remain happy with it.
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    You might like to look at the High yield portfolio - a kind of "DIY" Equity Income fund.

    http://www.fool.co.uk/specials/2006/specials060208.htm

    Less risky than the IP funds (which tend to have quite a bit in fags utilities) and of course negligible charges after inital transaction costs.
    Trying to keep it simple...;)
  • munk
    munk Posts: 993 Forumite
    wombat42 wrote: »
    Thanks. What would be your choice of UK equity income fund ? Would you pick one of those two ?

    I am about to invest in the high income fund. Like yorkshireboy pointed out, the analysis of the woodford income funds is pretty solid. It was one of the funds that I first picked as a favourite for my 'core' portfolio.

    My analysis:
    Apparently Woodford's run the fund continuously for 19 years (search for 'manager start date') and during that time he's managed to add good value to the fund (click on 'manager', note the high MRI value and how the manager's performance graph consistently outperforms the benchmark graph). On the morningstar site you can also get of course the morningstar rating for the fund over 3/5/10yrs - in all cases it's 5/5 stars.

    Looking at the fund on Citywire you can see woodford's rating is AA and the Lipper scores for the fund are the highest at '1' apart from in the 'expense' scorecard (ps I think you need to register to view the full fund facts on Citywire, but it's free and well worth it!).

    Also on citywire if you look at the year on year rankings for the fund within it's sector (UK Equity Income), the 1 year ranking for the fund is 12/90 which is at least in the top quartile for the sector. The 3 year ranking of the fund however is 2/78 and the 5 year rank is 3/68. So all in all a pretty decent performance in it's sector compared to it's peers.

    I'm just hoping he's not about to retire too soon. :)
  • Primrose
    Primrose Posts: 10,703 Forumite
    Part of the Furniture 10,000 Posts Name Dropper I've been Money Tipped!
    I have held both funds for many years in PEPs and ISAs and have been very happy with their performance. My only concern is that they have been very much Neil Woodford's "babies" and I wonder what will happen to them when he moves on or eventually decides to retire.
  • munk
    munk Posts: 993 Forumite
    Shh! Don't say the 'r' word! :)
  • jamesd
    jamesd Posts: 26,103 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    Here are some comparisons between HYP 1 and Invesco Perpetual High Income, which outperformed it by 4% over the period 2002-2006, after annual charges for the fund, ignoring all costs for the HYP.

    Annual value change first, two versions for HYP, one with income reinvested at the end of each year, the other the raw one without reinvestment:
    Year	IPHIncome	HYP 1 reinv	HYP 1 raw
2002	-10.8		-7.6		-12.2
2003	21.5		13.7		9.1
2004	21		15.5		11.5
2005	27		26.2		22.3
2006	27.3		33.0		29.4

    Next, start of year values, with reinvestment:
    Year	IP HIncome	HYP 1
2002	75414		75414
2003	67269		69687
2004	81732		79226
2005	98896		91542
2006	125598		115502
2007	159886		153590

    Finally the full data set, just for completeness:
    Invesco Perpetual High Income			HYP 1, dividends reinvested at end of year	HYP no reinvestment			
	Start	Change	Yield	End		Start	Change	Yield	End	Change		Start	Change	Yield	End
2002	75414	-10.8	0	67269		75414	-12.2	3474	69687	-7.59		75414	-12.2	3474	66213
2003	67269	21.5	0	81732		69687	9.1	3197	79226	13.69		66213	9.1	3197	72239
2004	81732	21	0	98896		79226	11.5	3205	91542	15.55		72239	11.5	3205	80546
2005	98896	27	0	125598		91542	22.3	3546	115502	26.17		80546	22.3	3546	98508
2006	125598	27.3	0	159886		115502	29.4	4131	153590	32.98		98508	29.4	4131	127470
2007	159886					153590						127470

    HYP1 did really well for a set of shares, but with more concentration of risk than Invesco Perpetual High Income, and somewhat lower performance. The fund beats it for those reasons and the flexibility of being able to invest any amount at any time.

    I didn't have figures for the yield of the fund, so I just used the ones including them and pretended the yield was 0. It was really a bit over 3%.
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    jamesd wrote: »
    HYP1 did really well for a set of shares, but with more concentration of risk than Invesco Perpetual Higher Income

    The IP HI fund is actually quite a bit more risky IMHO than the HYP concept with its typical concentration in utilities and cigarette shares.A fundamental principle of the HYP concept is diversification to reduce risk - only one utility and one cigarette share would be allowed in a 15 share portfolio.IPHI also invests in shares like Drax and British Energy which would be regarded as too risky for an HYP.

    It is quite surprising that the HYP almost matched the fund's performance given its lower risk structure. :)

    The yield of the HYP is around 4.5% and rising whereas the yield of the fund is around 3% and static, due to the deduction of the annual 1.5% charge from the dividend payment.Mr Woodford does not churn the portfolio so the reduction in returns due to transaction charges is thought to be quite modest, in the 0.4% range.

    [Disclosure: I hold both an HYP and a tranche of the IPHI fund.]
    Trying to keep it simple...;)
  • jamesd
    jamesd Posts: 26,103 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    Invesco Perpetual High Income has way more holdings than just the 10-15 of the HYP, reducing the risk of loss of capital if one goes under. It's lower risk than HYP, not higher. Top ten holdings at the end of July accounted for 41.5% and were:

    GLAXOSMITHKLINE 5.20
    BP 5.10
    BRITISH AMERICAN TOBACCO 4.80
    REYNOLDS AMERICAN INC 4.80
    NATIONAL GRID 4.30
    IMPERIAL TOBACCO GROUP 3.80
    BT GROUP 3.70
    BRITISH ENERGY GROUP 3.60
    VODAFONE GROUP 3.20
    CENTRICA 3.00

    If one went under, 5.2% was the largest it would have lost, while HYP1 with hold forever could have lost 10% if Land Securities went under with the end of 2006 HYP split.

    Invesco Perpetual High Income doesn't take costs and fees from income, it takes them from capital. More of the total returns come in growth from Invesco Perpetual High Income, so that 3.1% or so yield is from a more rapidly growing capital value.
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