UK funds feel the Brexit effect, but FX remains best barometer
By International Adviser, 16 Jun 16
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There are bigger things to worry about than Brexit – Woodford
Reiterating his view that one cannot construct a convincing long term economic argument that supports either ‘remain’ or ‘leave’, Woodford Investment Management’s head of investment, Neil Woodford, said his fund’s strategy will not change on either outcome.
Woodford acknowledged that from a UK and arguably European perspective, a vote to leave would be destabilising for investors and for governments across Europe, which 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. But, he added, the broader macro environment weighs far more heavily on his decision making.
“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,” he said.
As a result, Woodford concluded: “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.
“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.”
Tags: Axa | Brexit | Hargreaves Lansdown | Lipper | Neil Woodford
