Neil Woodford, the widely followed fund manager, has updated investors with his views on Lloyds, deflation, Brexit and even Donald Trump in a webchat Q&A this week.
Mr Woodford, who now runs £14bn of funds for the company he founded, Woodford investment Management, fielded questions on the companies in his own funds, the economy, his investing philosophy and much else besides during the hour long online event.
Here we gather together some of his most revealing answers.
On Lloyds Banking Group…
In general, I remain very cautious about the investment attractions of the banking sector. With respect to Lloyds, albeit much improved and arguably more investable than at any stage since the crisis, it is still not sufficiently attractive to warrant a place in the funds.
One thing that continues to concern me is the exposure to the UK housing market. Any correction here would shatter the consensual view that its balance sheet is rock solid.
On Brexit…
I believe the impact would be broadly neutral – in the short term there might be some volatility but in the long term, as our independent report concluded, the outlook for the UK economy doesn’t hinge on this decision and neither does the outlook for the funds.
Yes, weakness in sterling would indeed be a shot in the arm for exporters but whether it is enough to move the dial on economic growth is another matter.
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The debate in the UK has been very parochial hitherto. Brexit could indeed be existential for the eurozone project as it is currently constructed, not least because the refugee crisis and economic stagnation are already fundamentally stressing the organisation.
The elections in Germany over the weekend are ample evidence of this. If we did vote to leave, there would be a period of economic uncertainty, coincident with currency volatility for the UK and the eurozone. I don’t think this would result in an economic meltdown, however.
Deflation, deflation, deflation! The portfolios are positioned for a deflationary environment. I believe the funds can continue to deliver an attractive long-term return, even in a period of deflation, but the market as a whole would probably struggle.
You could argue that the attraction of decent dividend-yielding stocks with secure and sustainable growth prospects is obvious in such an environment.
On Donald Trump…
His popularity, in my view, is in part a product of the ongoing economic difficulties faced by many developed countries.
Socio-economic groups that have not benefited from the recovery of the US economy since the financial crisis feel marginalised and are showing an increasing preference for "outsider" politicians, like Bernie Sanders and Donald Trump.
Trump’s more extreme political views on the campaign trail are likely to moderate significantly if he is elected. In addition, the checks and balances in the US political system would clearly make some of his more extreme policy choices unlikely to prevail. My conclusion is, if he were elected, it would have a very limited impact on the US economy.
On the performance of unquoted shares in his Patient Capital investment trust…
Most of the unlisted assets are still held at the value at which we initially invested. There have been one or two early successes and the operational performance of this part of the portfolio has been very encouraging. Indeed, our initial expectations for the underlying performance of many businesses in the portfolio have already been exceeded.
On house prices…
Purely on the basis of valuation, I am very cautious on the outlook for UK house prices over any time horizon. That said, UK housing has defied my expectations for a long time and that could continue.
On his earliest investments…
I first became aware of the stock market shortly after I started working in my early 20s, despite having studied economics at A Level and at university. My earliest investments were not successful and, although not good for my bank balance, they taught me a lot about fundamentals, valuation and patience.
On taxing smokers…
The tax burden placed on smokers is disproportionate, for example, when compared to the cost of smoking-related health issues on the NHS. There are other harmful habits that place a considerable economic burden on the state but don’t get taxed at all.
On Warren Buffett, and some essential reading…
Over the 30 or so years I have been doing this I have encountered many people who I have admired and who have influenced, profoundly, how I have developed as a fund manager. Warren Buffett is someone who features prominently on that list.
His annual letters to shareholders are unrivalled.
One book I would recommend, which helped me during the tech bubble, is Extraordinary Popular Delusions and the Madness of Crowds, which was written in the 19th century.
On the advice he’d give his younger self...
I would encourage the younger me to recognise that it is a fool’s errand to attempt to add any value in the short term. The industry is already littered with too many busy fools. A clear focus on the long term with a patient but vigilant approach is one I would recommend.
Finally, I believe it is important to understand the socially useful function a fund manager can perform when focused on what really matters.