(Bloomberg) -- When Neil Woodford’s successor at Invesco Perpetual took over his funds, he also embraced his investment strategy. Five years on, Mark Barnett is suffering from the same loss of investors’ confidence that led Woodford to lock up his flagship fund.

U.K. equity income funds, which typically invest in large, dividend-paying companies, were hit by 15.3 billion pounds ($19.4 billion) of withdrawals from the start of 2016 through April of this year, according to Morningstar data. Funds managed by Barnett and Woodford accounted for two thirds of that.

Part of the problem is that U.K. equity income funds have generally fared worse in recent years than broader indexes like the FTSE All-Share Index, leading some investors to shift their money into passive index-tracking funds that cost less. That’s compounded by Woodford and Barnett ratcheting up their holdings of smaller companies that can be harder to sell in a pinch.

“The funds have seen a natural steady redemption profile for a number of years,” Barnett said by email. “We are not experiencing any unusual increase in redemptions,” he said. “I am seeking to provide investors with attractive levels of income, from well diversified sources that have the ability to grow over time.”

Invesco U.K. equity income funds managed by Barnett shed about 7.5 billion pounds from the start of 2016 through April of this year, according to Morningstar data. In the same period, investors withdrew about 3 billion pounds from the LF Woodford Equity Income fund, the data show.

Returning investors’ money can be complicated when a fund holds a lot of hard-to-sell securities. Woodford dealt with this problem by suspending redemptions from his main fund, buying time to offload “unquoted and less liquid stocks” and replace them with more readily traded investments.

Before Woodford froze his flagship fund, smaller companies made up more than two thirds of its holdings. Barnett has also increased exposure to smaller companies in recent years, though not to the same extent. About 40% of the holdings in his High Income U.K. fund were in small and micro-cap companies in April 2019, up from about 8% in June 2014, Morningstar data show.

Another of Barnett’s funds, the Edinburgh Investment Trust, announced “disappointing ” results this week as its net asset value increased at less than half the pace of its benchmark index. That lackluster performance has led the trust board to take a more critical approach to the fund’s strategy.

“In the light of the company’s under-performance during the past three years, the board stepped up its scrutiny of the way that the portfolio is managed,” wrote Chairman Glen Suarez. Still, the board stood by Barnett, saying his approach “is the right one to meet the company’s objectives.”

--With assistance from Nishant Kumar.

To contact the reporter on this story: William Mathis in London at wmathis2@bloomberg.net

To contact the editors responsible for this story: Shelley Robinson at ssmith118@bloomberg.net, Patrick Henry

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