Woodford not for changing – Brexit or not

Neil Woodford has reaffirmed his stance that he will not make any changes to his investment strategy – whatever the outcome of the UK’s referendum on EU membership this month.

Arguably one of the UK and Europe’s most popular fund managers, Woodford said in a statement on his company’s website today that despite political temperatures rising, as we approach the Brexit vote on 23 June, his investment strategy for the Woodford Equity Income fund will remain unaltered, as other  factors are more likely to have a greater bearing on returns, than the vote result.

He stated that a convincing long term economic argument that supported either ‘remain’ or ‘leave’, could not be formed, a view part-based from research commissioned several months ago by Woodford Funds. And despite short term uncertainty, he would not be altering his portfolio after the vote.

‘Leave’ vote uncertainty

“I am not saying that there wouldn’t be more uncertainty in the short term associated with a ‘leave’ result,” said Woodford. “Clearly, from a UK and arguably European perspective, such an outcome would be destabilising for investors and for governments across Europe and this would take time to dissipate.

“Of course the likely coincident fall in sterling (especially against the US dollar) would provide some mitigation but in the short term this uncertainty would weigh on us all,” he said.

Global caution

Woodford pointed to his cautious view is not restricted to the UK economy, as European and global growth would “continue to fade and disappoint consensus”.

He pointed to excessive government and consumer debt (excessive corporate debt in China); excess capacity and deflation; rapidly ageing demographics; very weak productivity growth; and a lack of investment as key drivers of his viewpoint.

“There are others,” he says. “Such as unfunded retirement commitments common among Western democracies, inadequate savings, wealth inequality, the rise of political populism, and in my view the challenges posed by the scale of the Chinese credit bubble and the implications of its rapid deflation”.

Woodford believes that these issues will exert “a more profound influence” over the UK economy in the long run than will membership of the European Union. “These problems will not be resolved by our membership of the EU nor will they be resolved through leaving it,” he said.

‘Co-ordinated global policy’

“Furthermore, these are multi-regional, global problems and their solution requires co-ordinated global policy action, the likes of which we have not really seen since the Bretton Woods Conference and the gathering of delegates from 44 nations in the aftermath of World War II”.

Woodford added that his portfolio is invested in businesses that he believes will deliver the right levels of growth despite “these significant macro headwinds” and equally important, he says, “these companies trade on valuations which do not reflect that capability”.

“As such, we remain very confident of delivering very attractive returns to investors over that long term time horizon, regardless of the outcome of the forthcoming referendum,” he added.

ABOUT THE AUTHOR
Gary Robinson
Deputy Editor, International Investment and Head of Video at Open Door Media Publishing. A fully qualified journalist and filmmaker with more than 20 years' financial services experience, both as journalist and originally as an IFA.

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