Neil Woodford on market sell-off

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Mitchell Fraser-Jones 16 October 2014 Est. reading: 3 min read

Given the recent market declines, we took the opportunity to film Neil for his latest views. Please watch below to hear Neil’s thoughts on the sell-off and on why he is still upbeat about long-term prospects.


So we’re in the teeth of a pretty severe sell-off, but I think it’s important to differentiate between what we’re seeing now and what we saw in the wake of the collapse of Lehman’s and the banking crisis in 2008. Then I think there were major concerns, and rightly there are concerns about the banking system, its ability to support the economy, whether banks will be able to open on a Monday, for example, and provide cash to consumers such that the economy could function in a conventional way.

We’re not– this crisis today is not really about that at all. I think we are in a better place with the banking system. Banks have more capital. They have plentiful liquidity. We’re not facing that sort of problem. What we are facing as, as I have said, a reappraisal of the outlook for the global economy.

In the context of what I believe is happening to the global economy, this readjustment in asset prices is arguably quite rational. Within it, there will be irrational things happening. So the arbitrary raising of liquidity results in odd things happening in asset markets, but the overall adjustment I think is a rational reaction to a more realistic appraisal of the outlook for the global economy.

So in answer to the question– how long does this sell-off go on for– that’s almost impossible to answer. But my gut instinct is that we are in the teeth of a pretty aggressive sell-off but that it may well be substantially through sort of the more acute phase. So I think asset prices are readjusting. I think there’s a bit more to go, but I think we’ve endured a pretty severe sell-off already. So I wouldn’t expect this correction to go on for weeks and months. I think it’s going over and done with relatively quickly.

But importantly, as I have said already, when we built the portfolio and thought about the strategy, we positioned the portfolio for this– not necessarily for this immediate sell-off, if you like, in the market. But it is absolutely the case that the portfolio’s been constructed with a much more conservative perspective on global growth. So to some extent, this reappraisal of the expectations for what the global economy can do and the fears now of deflation are what I have embedded in my portfolio construction strategy.

So this is not a surprise to me.

And I think the portfolio is positioned– very robustly positioned– for the outlook that I now believe we will see and which the market is beginning now to believe in. It doesn’t mean, of course, that the portfolio isn’t exposed to this sort of readjustment in equity markets, and the sort of selling that takes place in equity markets is pretty arbitrary at times like this. So good stocks get hit with more vulnerable stocks. So it is the case that the portfolio has dipped in value, but there is– the portfolio is holding up very well in this sell-off. But importantly, I think, on a three- to five-year view– and that is my investment horizon– I talked about the ability of the portfolio to deliver high single-digit returns over about a three- to five-year time horizon.

And I talked about those sorts of returns in the context of a very challenging economic backdrop over that period of time. So really, nothing has changed in that regard. I believe the world economy faces a challenging future, but I do believe that the portfolio, as it is positioned, is capable of delivering those sorts of returns over that longer term time horizon.

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
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  • 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

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