Brexit revisited

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Neil Woodford 13 June 2016 Est. reading: 4 min read

With just days to go before the Referendum, Neil explains why Woodford investors won’t see any change in his investment strategy – whatever the outcome.

As the political temperature rises as we approach the Brexit vote on 23 June, with just ten days to go, this seems an appropriate time to remind our investors where we stand on the issue. Of course, given the media and political focus on Brexit it is tempting to keep one’s head down and avoid saying anything controversial. 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.

As you will know, we commissioned some research several months ago, which helped to inform our view about the likely economic implications of ‘remain’ or ‘leave’. We have spent some time and expended much intellectual effort testing our hypothesis and with only a few days to go to the vote, we stand by our initial conclusions. They were, for the record, that we could not construct a convincing long term economic argument that supported either ‘remain’ or ‘leave’.

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.

If this is the case, why then do we stand by our initial conclusions? To answer this question investors need to understand the long-term context of our macroeconomic assumptions.

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.

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.

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.

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.

Finally, all this begs the question: “If the world is that challenging why are you confident that your fund will deliver the high, single-digit returns per annum over a three- to five- year time horizon?” Our answer is that the portfolio is invested in businesses that we believe will deliver this level of growth despite these significant macro headwinds I have described and equally important, 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.

View our research report here

What are the risks?

  • The value of the fund and any income from it may go down as well as up, so you may get back less than you invested
  • Past performance cannot be relied upon as a guide to future performance
  • The ongoing charges figure is charged to capital, so the income of the fund may be higher but capital growth may be restricted or capital may be eroded
  • The fund may invest in other transferable securities, money market instruments, warrants, collective investment schemes and deposits – some of these security types could increase the fund′s volatility and increase the level of indirect charges to which the fund is exposed
  • The fund may invest in overseas securities and be exposed to currencies other than pound sterling – as a result, exchange rate movements may cause the sterling value of investments to decrease or increase
  • The fund may invest in unquoted securities, which may be less liquid and more difficult to value, because they are generally not publicly traded – the lack of an open market may also make it more difficult to establish fair value

Important information

Before investing, you should read the Key Investor Information Document (KIID) for the fund, and the Prospectus which, along with our terms and conditions, can be obtained from the downloads page or from our registered office. If you have a financial adviser, you should seek their advice before investing. Woodford Investment Management Ltd is not authorised to provide investment advice.

The Woodford Funds (Ireland) ICAV (the “Fund”) has appointed as Swiss Representative Oligo Swiss Fund Services SA, Av. Villamont 17, 1005 Lausanne, Switzerland. The Fund′s Swiss paying agent is Neue Helvetische Bank AG. All fund documentation including, Prospectus, Key Investor Information Documents, Instrument of Incorporation and financial reports may be obtained free of charge from the Swiss Representative in Lausanne. The place of performance and jurisdiction for all shares distributed in or from Switzerland is at the registered office of the Swiss Representative. Fund prices can be found at

Woodford Investment Management Ltd is authorised and regulated by the Financial Conduct Authority (firm reference number 745433). Incorporated in England and Wales, company number 10118169. Registered address: 27 Old Gloucester Street, London, WC1N 3AX.

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