Where ornithology meets monetary policy

Important Information

We want to make investing with us simple and straightforward for all of our clients.

Please select your investor type from the options below.

Alternatively you can register or log in to an existing account.

Please note that by making your selection here you are agreeing to the Woodford Investment Management Ltd Privacy Statement and to our Terms and Conditions.

Neil Woodford 30 December 2015 Est. reading: 3 min read

Central bankers are often characterised as doves or hawks. Being ‘dovish’ suggests that a policy maker is against interest rate rises, or favours interest rate cuts to deliver monetary policy objectives. Being ‘hawkish’, meanwhile, suggests the opposite – a hawk is keen to raise interest rates in order to choke off anticipated inflation. Doves and hawks coexist on committees such as the Bank of England’s Monetary Policy Committee (MPC), often drawing radically different conclusions about the same economic conditions and, ultimately, policy will tend to reflect a compromise of the more extreme views.

Some central bankers, however, appear to be dyed-in-the-wool doves or hawks, others are able to change their views depending on the prevailing circumstances. All of them, however, will tend to rely on back-dated economic models to some degree, in formulating their views. Herein lies one of the major failings of modern monetary policy and indeed, the ‘dismal science’ of economics more broadly.

Even long-standing trends such as the migratory patterns of bird species can become influenced by new variables. Research by the British Trust for Ornithology recently found that blackcaps, a species of warbler that until recently was just a summer visitor to these shores, have started to change their migratory behaviour. Until the 1950’s, blackcaps breeding in southern Germany and Austria typically migrated in a south-westerly direction towards southern Spain. Since then, however, the species has rapidly evolved a successful new migration route in a north-westerly direction, attracted to the abundance of supplementary bird food being put out in the gardens of England over the winter months.

In the worlds of economics and monetary policy too, trends change. Things are rarely set in stone. It is necessary, therefore, to recalibrate the models sometimes – or, even better, ditch them altogether – in order to deliver an appropriate policy for an ever-changing world.

Yet, central bankers across the developed economies, still seem to look at the post-financial-crisis world through an old world lens, reluctant to admit that the new world is very different. How else can one explain the confidence that the MPC places on the gravitational pull on inflation back to 2% in 2 years’ time?

In my view, it is more likely that we will see further negative inflation in the UK within the next 2 years, than a +2% rate. In essence, I am much more concerned about the threat of deflation than inflation. Some members of the MPC seem to understand the deflationary nature of the current environment better than others. Andy Haldane, the Bank of England’s Chief Economist, has recently argued for rate cuts, rather than rate hikes. We need more doves like Haldane, in my view, but I fear that the MPC is dominated more by hawks than it is by doves. Consequently, the argument that current monetary policy settings are not sufficiently stimulatory to achieve their objectives, does not have enough support within our central bank.

Given all of the above, you won’t be surprised to read that I remain cautious about the medium-term outlook for the UK economy, as I do for the global economic environment. This continues to inform an investment strategy that is focused on investing in attractively valued dependable growth opportunities that can grow sustainably in the years ahead, in spite of the global economic headwinds. Meanwhile, the fortunes of our smaller positions in earlier-stage companies with considerable long-term growth potential will be largely determined by their own progress, not by macroeconomic factors.

This leaves me confident that the funds can deliver attractively positive long-term returns to investors, even in the difficult macroeconomic environment that I foresee and even if we do see policy errors. But there is more risk in markets now than at any stage in the last 5 years and it is as important as ever that investors are selective.

This article first appeared in Hargreaves Lansdown’s Investment Times.

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 www.fundinfo.com.

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 9400 Garsington Road, Oxford OX4 2HN.

Woodford Patient Capital Trust plc is incorporated in England and Wales, company number 09405653. Registered as an investment company under section 833 of the Companies Act 2006. Registered address Beaufort House, 51 New North Road, Exeter, EX4 4EP.

© 2019 Woodford Investment Management Ltd.
All rights reserved.

Are you sure?

By disagreeing you will no longer have access to our site and will be logged out.

Privacy Preference Center

Experience Tracking

Lets our analytics service track you across our different websites and enables data sharing among our different marketing tools.

AMCV_[Tracker ID]@AdobeOrg (Adobe), [Tracker ID]@AdobeOrg (Adobe)
Adobe Analytics (helps us provide you with more relevant experiences and content based on your likely interests). Cookies: demdex, dextp, dpm, DST, DSTJS
Twitter personalisation (by better understanding how devices are related, Twitter can use information from one device to help personalize the Twitter experience on another device). Cookies: personalization_id
Heap Analytics (provides metrics on user behaviour and actions throughout the site). Cookies: _gid, _hp2_id.[Tracker ID],_hp2_props.[Tracker ID], _ga, _mkto_trk, optimizelyBuckets, optimizelyEndUserId, optimizelySegments, raygun4js-userid, _attribution_referrer, _csrf
Adobe Analytics (provides you with more relevant experiences and marketing messages based on your likely interests). Cookies: _tmae ,ev_sync_dd,ev_sync_yh,everest_g_v2,gglck

Traffic Metrics

Allows Woodford to aggregate information on website usage and popular content

_ga, _gid
Google Analytics (tracks and reports website traffic and user behaviour): Cookie: CONSENT
New Relic (application and server performance monitoring – allows us to spot problems with our website code and improve them to keep things running smoothly). Cookie: JSESSIONID
Adobe Analytics (provides you with more relevant experiences and marketing messages based on your likely interests). Cookies: __qca,__smToken, _ga, _mkto_trk, _rtbmedia

Search History

Populates the 'recent searches' section of the website navigation.

wf__recent_searches_untracked

Close your account?

Your account will be closed and all data will be permanently deleted and cannot be recovered. Are you sure?