Not Shaken, Not Stirred: Woodford Pledges to Keep Calm and Carry on – in or out
Rock star fund manager Neil Woodford, has said that regardless of the outcome of the forthcoming EU referendum, it will be business as usual in Oxford as he won’t be changing a single constituent of his Woodford Equity Income Fund.
Investors have flocked to support Woodford since he launched the fund in June 2014, piling almost £9bn into it; and they’ve not been disappointed – returns in 2015 were 16% compared to 6% for the average UK equity income fund.
Having commissioned a group of economists to report upon the economic consequences of Brexit, Woodford concluded that ‘we could not construct a convincing long term economic argument that supported either ‘remain’ or ‘leave.’
‘Of course, given the media and political focus on Brexit it is tempting to keep one’s head down and avoid saying anything controversial’ he continued ‘however, I believe that it is important that our investors understand how we are contextualising a ‘remain’ or ‘leave’ vote in our investment strategy for the CF Woodford Equity Income Fund.
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.’
‘we could not construct a convincing long term economic argument that supported either ‘remain’ or ‘leave’
I have said on many occasions that I am very cautious about the outlook for the UK economy and indeed for Europe and other important economic blocs. 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 others, 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. Many of these issues will exert a more profound influence over the UK economy in the long run than will our 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.’
Mr Woodford added, ‘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 the Second World War. So, from a portfolio strategy perspective, I continue to believe that there are many more significant challenges facing the UK economy in the long term than Brexit and it is these issues (and others) which have framed our portfolio selections in the fund. That is why the portfolio strategy will not change on a ‘remain’ or ‘leave’ vote.
‘these are the challenges which we must confront if we are to sustain our democracy’
One other very important issue, which we have discussed recently with investors on a number of occasions is the global complexion of the equity income fund portfolio. The profits, cash flows and dividends of the constituents of the fund will be influenced more profoundly by wider global and sectoral trends than by the performance of the UK economy. Consequently, whether you agree with me or not, it is important for investors to think about the Brexit vote alongside and in the context of all these other factors, which pre-date the Referendum and will dominate the economic landscape long after the vote has faded from investors’ minds.
In the long run, as I have said, many issues will influence the returns we will be able to deliver to our investors. It is my job to keep an appropriate investment perspective on all of them, to weight them appropriately and focus on what is really important.’
The largest investments in the fund are Imperial Tobacco and AstraZeneca and in the two years since its launch the Woodford Equity Income fund has returned 19% compared to 4% average for the sector.
Mr Woodford also manages the £750m Woodford Patient Capital Trust which aims to deliver over 10% long term investment returns by investing in disruptive early stage and early growth companies.