January roundup

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Mitchell Fraser-Jones 4 February 2019 Est. reading: 5 min read

January Roundup

Mitchell Fraser-Jones
4 February 2019

“The UK economy entered 2019 with positive momentum and looks well placed to continue to strengthen as the year progresses. This will, in my view, contrast significantly with almost every other large developed economy, including China, where recent data has been worryingly weak. In Europe, the disappointing data we saw in the second half of 2018 is getting worse, Japan is not growing at all, and I believe the US economy will slow as the year progresses. The UK’s economic performance in 2019 will, in that context, stand out from most of its peers.”

— Neil Woodford

Equity markets enjoyed a robust start to the year, rebounding from December’s declines. Global macroeconomic data appeared to resonate more with the market behaviour at the end of last year, however, with weakness particularly evident in China and Europe, and growing concerns about the outlook for the US economy.

Towards the end of the month, the Federal Reserve (Fed) responded to the deteriorating economic environment by signalling that it is pretty much done with interest rate hikes for now and intends to be more flexible about the pace of its balance sheet ‘normalisation’ through the process of quantitative tightening (QT).

Although this evolution of Fed policy may have contributed to the near-term rally, the implications of a deteriorating backdrop are not positive for most risk assets from a longer-term fundamental perspective. Indeed, we expect the US to join the rest of the world in this more challenging economic environment, with very few regional economies possessing enough internal momentum to withstand the slowdown that is already in train. The UK economy is one of these rare exceptions.

The Bigger picture

Read more of our latest ‘Bigger picture’ thoughts here

Month in numbers

Source: Bloomberg, IHS Markit, Bank of America Merrill Lynch, Southwestern University of Finance and Economics


Year-on-year increase in UK house prices – well ahead of expectations

$1.2 trillion

Amount of $-denominated Chinese debt that will need to be refinanced this year


US daily oil production (in barrels) – more oil output than Saudi Arabia


UK average weekly earnings growth to November 2018 – the highest rate of pay growth since 2008


Consensus expectations for Provident Financial’s current year pre-tax profit – a 3.5% downgrade following its January trading update resulted in a 20% share price decline

$179 trillion

Total amount of global debt outstanding, representing 230% of global GDP

65 million

Estimated number of apartments standing empty in China (that’s equivalent to almost half of the entire US housing stock)


UK unemployment rate, lowest level since 1975


Bovis Homes’ housing completions in 2018, another year of profitable growth


Our strategy remains focused on avoiding the considerable risks that have built up in equity markets over the last decade of QE-fuelled exuberance, and capturing the opportunity that exists in the few parts of the market that have been left behind.

Over the course of the last two years, we have seen a very attractive investment opportunity emerging in domestically-exposed stocks, which have been increasingly out-of-favour since the UK voted to leave the European Union in June 2016. As the negotiations with Europe have progressed, uncertainty about the path of the UK’s future relationship with Europe has increased. The UK has consequently fallen heavily out of favour with global asset allocators and, within the UK stock market, a significant gap has opened up between the performance and valuation of international-facing stocks and domestically-exposed stocks. The open-ended funds have progressively increased their exposure to the latter, selectively focusing on stocks which are pricing in a bleak scenario for the UK’s future, which stands in stark contrast to the much more positive economic data that we are seeing.

Elsewhere, the Woodford Equity Income Fund and Woodford Patient Capital Trust portfolios continue to be positioned to capture an exciting long-term opportunity across a range of earlier-stage businesses exposed to the themes of healthcare innovation and disruptive technology more broadly.

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  • The value of investments and any income from them 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 funds may be higher but capital growth may be restricted or capital may be eroded
  • The funds may invest in other transferable securities, money market instruments, warrants, collective investment schemes and deposits – some of these security types could increase the funds’ volatility and increase the level of indirect charges to which the funds are exposed
  • The funds and trust 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 these investments and the income from them, to fluctuate
  • The LF Woodford Income Focus Fund will be invested in a concentrated portfolio of securities – the fund is not restricted by reference to any geographical region, sector or market capitalisation
  • The LF Woodford Equity Income Fund and the Woodford Patient Capital Trust 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
  • The price of shares in the Woodford Patient Capital Trust is determined by market supply and demand, and this may be different to the net asset value of the trust. This means the price may be volatile in response to changes in demand
  • Long-term outcomes are more binary – extremely attractive rewards for success but some businesses will inevitably fail to fulfil their potential and this may expose investors to the risk of capital losses
  • Young businesses have a different risk profile to mature blue-chip companies – risks are much more stock-specific, which implies a lower correlation with equity markets and the wider economy – it can take years for young businesses to fulfil their potential, this investment requires patience

Important information

Before investing, you should read the Key Investor Information Document (KIID) for the fund – or Key Information Document (KID) for the trust – 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 Patient Capital Trust currently intends to conduct its affairs so that its securities can be recommended by IFAs to ordinary retail investors in accordance with the FCA’s rules in relation to non-mainstream investment products and intends to continue to do so for the foreseeable future. The securities are excluded from the FCA’s restrictions which apply to non-mainstream investment products because they are shares in an investment trust.

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.

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