“Investors are worried”

For DIE WELT, I interviewed Neil Woodford, one of the most successful fund managers in the UK. Woodford worked for over 25 years at Invesco Perpetual before founding his own investment management company in 2014, Woodford Investment Management. I went to Oxford to pose some questions to him. The slightly longer version of the interview, in German, will be published in DIE WELT later this week.

How did you initially react to the Brexit vote? Did you see it coming?

In the lead up to the referendum I had thought that the vote would be close but I was surprised by the outcome. It was a surprise largely because the bookies were confidently predicting a Remain win as was the market – the polls were much closer but their credibility had been undermined by their failure to accurately predict the outcome of last year’s General Election.

What is your assessment of the initial market reaction and what do you expect for the weeks to come?

Investors are worried – they don’t know what Brexit means politically and economically. At times like this, it pays to keep calm. I’ve said before on several occasions, that this result isn’t going to change the fundamental trajectory of the UK economy over the next three to five years. We’ve been cautious about the outlook for the UK economy and the global economy for some time – there are many other challenges that we need to face up to.

In how far will there be a long term impact for financial markets in the UK, Europe and also globally?

It’s very difficult to say. It is likely that political uncertainty will continue both here in the UK and in the rest of the EU – not least because the new Prime Minister will not be known until after the summer and only then is it likely that the process of triggering Article 50 will start. How the negotiations then unfold is not clear. Having said that, I believe that the vote’s economic implications have been exaggerated significantly and that the fall in equity markets overdone. Within a few weeks I expect calm to return and a more balanced perspective to replace the fear of the last few days.

Do you think this could trigger another financial crisis or not? If not, why not?

I do not expect the UK economy to fall into a recession. Growth will slow but not by as much as people think. Inflation in the UK will also end up being a little higher as a result of the fall in sterling. Financial markets in other parts of the world should also recover some poise in the next few weeks. However, macro challenges will continue to build and global growth will continue to slow.

What does this mean for investor sentiment towards the UK? Will the UK become less attractive for international investors and do you think this period will last long?

Sterling’s fall makes the UK more attractive as a destination for foreign investment although how the discussions go with the EU after October will have an important bearing on the near-term level of business confidence. In the medium and long term other factors will be much more important in defining international investors perception of the UK as a destination for investment – for example, productivity, legal framework, tax, labour market flexibility, regulation, education and skill levels, and political stability.

Which stocks do you see benefitting from this, both short- and long-term?

We construct our portfolio in the light of those challenges that we’re going to have to navigate through over the next three to five years and beyond. I don’t think the prospects for the businesses that we’ve invested in have deteriorated at all as a result of the referendum. The course of those businesses is broadly as we thought it was before we voted to leave. So if you accept that the prospects are unaltered, and yet prices are lower, then by definition this means that the investment opportunity is more attractive.


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