Woodford: Global Slowdown Bigger Threat than Brexit

Neil Woodford – one of the UK’s most successful fund managers – has revealed that he won’t be changing his investment strategy ahead of next week’s EU Referendum. He said his long-term investment plans will remain the same, regardless of whether the UK votes to leave or remain in the European Union.

In an update to investors in his Woodford Investment Management funds, he said that the UK faced a number of global  headwinds, many of which would exert “a more profound influence over the UK economy in the long run than will our membership of the European Union”.

He added: “I have said for some time that global growth would continue to fade and disappoint consensus (with all the associated implications for corporate profits and cash flows). This realistic caution is a reflection of the complex coalition of linked challenges policymakers face. They are daunting and include, in no particular order: 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.

“There are other [problems] such as the 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.”

He stressed that these various problems would not be solved by either remaining in, or leaving the European Union. These were challenges faced by individual countries as well as those that are part of larger trading blocs.

“In my view, these are the challenges which we must confront if we are to sustain our democracy and deliver the rising living standards that we all expect. 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.”

Short Term Challenges 

However, Woodford did not minimise the short-term problems that could emerge from a Brexit vote. “To be clear, I am not saying that there wouldn’t be more uncertainty in the short term associated with a ‘leave’ result.

“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.”

Woodford – who has a bronze-medal rating from Morningstar – runs Woodford Equity Income and the Woodford Patient Capital Investment Trust.

But despite the short and long-term challenges ahead, Woodford told his investors he remained confident that his equity income fund would continue to deliver the expected “high single digit returns” over a three- to five-year time horizon.

Source: Morningstar. Emma Simon | 14/06/2016

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