November 8, 2019 / 5:42 PM / a month ago

UPDATE 2-Invesco UK manager defends 'well diversified' funds after downgrade

* Morningstar downgraded two Invesco funds to neutral

* Downgrade flagged concern over illiquid stocks

* Invesco funds were formerly managed by Neil Woodford (Adds FCA statement)

By Carolyn Cohn and Simon Jessop

LONDON, Nov 8 (Reuters) - Invesco fund manager Mark Barnett on Friday challenged a downgrade this week by fund rating firm Morningstar of his Invesco High Income UK and Income UK funds.

Morningstar cut the ratings to ‘neutral’ on Wednesday, citing concern about the proportion of each fund’s assets which were invested in illiquid stocks.

“My funds are appropriately positioned, well diversified and able to generate liquidity should investors wish to buy or sell,” Barnett said in a statement.

The Invesco funds have attracted investor attention because they were formerly managed by Neil Woodford, whose LF Woodford Equity Income Fund was wound up last month. The Woodford fund faced criticism of its investment in illiquid assets.

Morningstar’s downgrade, with a negative rating on some fund share classes, also came days after Britain’s markets watchdog told asset managers to ensure effective liquidity management.

“We have been in regular contact with the firm to ensure that assets are managed consistent with the stated objectives including fund liquidity,” the UK’s Financial Conduct Authority said in a statement.

Barnett, who worked with Woodford at Invesco before Woodford left to set up his own firm in 2014, said his funds were now “very different” and had relatively little overlap with the recently-closed Woodford fund.

“Based on the last reported holdings of the Woodford Equity Income Fund ... we believe that the overlap with my portfolios was less than 15%,” he said.

The Invesco high income fund had 6.1 billion pounds under management at end-September and the income fund had 2.8 billion, according to Morningstar data. Their assets under management have dropped by around 13% since end-May.

Woodford’s 3 billion pound ($3.8 billion) fund closed after a four-month suspension when it could not meet redemption requests. Morningstar had cut the Woodford fund to neutral in May, two weeks before it was suspended.

$1 = 0.7828 pounds Additional reporting by Aishwarya Nair in Bengaluru; Editing by Alexander Smith and Daniel Wallis

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