Neil Woodford: What the general election means for investors – What Investment

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 Neil Woodford: What the general election means for investors

Neil Woodford has thoughts on the general election

Woodford remarked, ‘I expect the Conservatives to win with an increased majority and, from that perspective, it looks like a no-brainer for May to capitalise on opposition weakness and secure a new five-year term.’

He continued, ‘I’ve said before that I am now more optimistic about the outlook for the UK economy than the market consensus, which has become increasingly negative since the EU referendum last year. The snap election does nothing to change this view – in fact it is positive as it should give us, as investors in the UK economy, much greater clarity and stability on domestic monetary and fiscal policy over the years ahead.’

Read more: How to profit from the 2017 general election

Woodford added, ‘Clearly, the election process will attract a lot of attention and generate a significant amount of column inches. From the perspective of financial markets, however, I don’t think it will prove to be as important as other elections – not in the near term at least. That is in part a function of the global nature of the UK stock market, but it is also because there is a reasonable amount of certainty around the outcome. The same cannot be said about other elections taking place elsewhere in Europe with, for example, the first round of the French elections just about to commence. There is very little certainty about the likely outcome of that contest and the possibility of another populist political surprise has the potential to make markets somewhat nervous in the weeks ahead.’

Woodford added, ‘In the UK, however, and with a longer-term time-frame in mind, I believe the prospect of a snap election removes much of the political risk that could otherwise have been present in the Brexit negotiations. I see a lengthy period of improving economic stability in the UK – one which is now much less likely to be derailed by politics.’

On the more recent market conditions he said, ‘Equity markets generally performed well in March in choppier and somewhat directionless conditions. With market participants seemingly unable to decide whether to retain faith in the ‘reflation trade’, sentiment swung swiftly between commodity stocks and exporters on the one hand and less cyclical parts of the market on the other.’

‘In part, this may be explained by an observed split between positive forward-looking ‘soft’ data, such as surveys of business and consumer sentiment, and more sobering backward-looking ‘hard’ data, which evidences actual economic activity. For some time now, the soft data has been suggesting that a pick-up in economic growth lies just around the corner but the hard data has thus far failed to deliver the much hoped-for recovery. As a result, the market’s confidence in the reflation trade has started to wane but occasional positive macroeconomic data points are seized upon with renewed enthusiasm.’

This flip-flopping has been reminiscent of the ‘risk-on / risk-off’ behaviour that characterised markets in the aftermath of the global financial crisis. In our view, it is indicative of a market that reflects a lack of conviction in the macroeconomic outlook. As was the case then, we have maintained strong conviction in our economic view, which is that the global environment will be remain challenging in the years ahead, with the deflationary forces of demographics, debt and weak productivity combining to hold back growth and inflation around the world. The funds have consistently been positioned with this view in mind.’

Woodford has been relatively muted in terms of investment activity over the past month. He commented, ‘Turning to portfolio activity, we participated in a public share offering by Prothena, which raised capital to further advance its pipeline. Although this is a long-term positive, the dilutive effect of the capital raising did put temporary pressure on its share price. Elsewhere, we added to the positions in Next and Horizon Discovery, and took part in a further funding round for Viamet, the unquoted drug discovery business that is focused on fungal infections.’

The largest investments in the CF Woodford Equity Income fund are AstraZeneca, Glaxosmithkline and Imperial Tobacco.