1 March 2018
“We may now be in the foothills of a profoundly different market environment. Fundamentals have not mattered recently but they should start to matter more from here.”
The Woodford roundups are changing shape. We will be providing shorter, more regular updates on macroeconomic and stock specific events, which will be published as they arise, with the roundups collating the highlights. What follows below represents something of a transition, covering January and February 2018 but we will revert to a monthly communication from here, published at the start of the subsequent month.
It has been a challenging start to the year for the funds and for markets more broadly. In January, we saw a continuation of the themes that have driven markets for much of the last two years now, with momentum – the habit of buying assets when they have risen in price, and selling assets when the price has fallen, with little or no regard paid to the fundamental value of those assets – firmly in the driving seat as far as share price behaviour was concerned.
Perception vs reality: French GDP data greeted today with references to how that economy is “flying”. It’s doing well but grew just 0.1% faster than UK in Q4 2017…
— Woodford (@woodfordfunds) January 30, 2018
Neil: Just finished reading an excellent note from James Ferguson at the MacroStrategy Partnership. It's another well-argued case to suggest that markets are very complacent about the growth outlook, based on a fundamental misunderstanding about how QE works & its implications. pic.twitter.com/liJTQ4MGYO
— Woodford (@woodfordfunds) February 9, 2018
Key Company Events
On Recent Market Volatility
Global stock markets suffered steep falls in the first few days of the month, before stabilising and staging a partial recovery. We believe this is the start of what we’ve been talking about for several months now and, although it remains too early to suggest that this is a definitive turning point for the fortunes of the Woodford portfolios, things are playing out broadly the way we have anticipated.
Some form of market correction was inevitable, but the exact nature and trigger of a correction is always unpredictable. One thing that is predictable in a dramatic market sell-off, however, is that it is largely indiscriminate to start with but it becomes more nuanced in the weeks that follow.
Pessimism towards UK equities is close to post financial crisis lows
Source: BofA Merrill Lynch Global Fund Manager Survey, Woodford
Fundamentals always eventually have a gravitational effect, which pulls share prices into closer alignment with reality. This is an inevitable consequence of the way that financial markets work and have always worked – fundamentals matter in the long run. In turn, that is why long-term fundamentals always drive our investment decisions and, with these in mind, we have crafted portfolios capable of delivering attractively positive long-term returns, despite a more challenging investment backdrop more broadly.
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