Invesco’s core range of investment funds have bled more than $1bn a week over the past 12 months, placing the Atlanta-based group at the top of the 2019 rankings of the worst-selling global asset managers.
Outflows are expected to continue in the wake of Morningstar’s decision to downgrade two of Invesco’s best-known UK funds, as retail investors respond to such moves by withdrawing their cash.
“Outflows have been terrible,” said Brennan Hawken, a senior analyst at UBS, the Swiss bank. “It’s a combination of a few factors that have led to profound pressure on the business — there is no getting around that.”
Invesco, which manages $1.2tn, has been simultaneously hit by moves away from active managers in the US and a lack of confidence among UK investors due to Brexit uncertainty. The group’s $5.7bn acquisition of OppenheimerFunds, which concluded in May, has also prompted client desertions.
The group’s share price, which peaked at $50.60 in 2000, has dropped more than half since the start of 2018 to $17.75. Martin Flanagan is one of the longest serving chief executives in the industry having taken the top job at Invesco in 2005.
Invesco suffered $54bn of net outflows from its mutual funds in the 12 months ended September, excluding its low-fee exchange traded fund business, according to Morningstar. The next worst-selling managers, Natixis of France and Franklin Templeton of the US, bled $40bn and $32bn, respectively.
Even after including Invesco’s ETF range — which has grown as the group has bought specialist providers — the company still had the biggest global net outflows of $40.6bn.
Invesco pointed to ETF inflows of $15bn so far this year, and said the group outflows resulted from clients reacting to market news such as Brexit uncertainty and the US-China trade wars.
“Given Invesco’s global footprint, we’ve been impacted by this de-risking to an outsized degree relative to certain peers, offset somewhat by positive flows in key parts of our business,” the group said.
Morningstar last week downgraded Invesco’s $7.8bn High Income and £3.5bn Income funds to “neutral”, with certain share classes cut to “negative”. Both funds were hugely popular with British investors under Neil Woodford and were taken over by his protégé Mark Barnett when Mr Woodford left Invesco six years ago.
The funds were downgraded due to concerns over their exposure to smaller and illiquid companies, as well as problems with their other holdings.
When Morningstar downgraded Mr Woodford’s Equity Income fund in May it led to a spike in outflows, which ultimately led to the fund’s suspension two weeks later.
On Friday afternoon, Mr Barnett offered a mea culpa to his investors following the downgrades, and sought to allay concerns over the liquidity of his portfolios.
“The strategy of these funds has not changed,” Invesco said in a statement to FTfm. “More than 80 per cent of the Invesco UK Equity Income funds is invested in companies with a market cap of more than £500m and over two-thirds is invested in companies with a market cap of over £1bn. Liquidity in the portfolios remains strong and has to date proven to be very manageable.”
FTfm last month reported that Invesco’s UK business experienced its biggest monthly outflows since Mr Woodford announced he was leaving the company to set up on his own six years ago.
Invesco is absorbing OppenheimerFunds following its acquisition from MassMutual this year. The purchase was the biggest asset management deal in the US for half a decade.
Invesco has cut 1,300 jobs as part of the integration so far, representing 12 per cent of the combined group’s headcount. The company has an annual cost-saving target of £475m.
The OppenheimerFunds deal was the most recent in a series of acquisitions overseen by Mr Flanagan. These include the $1.2bn capture of Guggenheim’s exchange traded funds business last year and the $500m purchase of Source, the specialist ETF provider, in 2017.
“There is a possibility that flows will improve,” said Evgeny Konovalov, an analyst at Fitch Ratings. “I’m not talking about a move to inflows, but being a little bit less negative.
“If they successfully integrate Oppenheimer and ramp up sales, they will possibly see a less challenging environment than they are in now — but it depends on where the market is going.”
Invesco’s total assets under management hit $1.2tn at the end of the third quarter, up from $963bn a year earlier, thanks to the $246bn of assets Oppenheimer brought with it.
“The headwinds should moderate — that’s the good news,” said Mr Hawken. “Right now it’s pretty much as bad as it can be.”
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