Helicopter money being issued by central banks would be a “watershed moment” but is a necessary evil, says star fund manager Neil Woodford.
Speaking to FundCalibre, Woodford says current monetary policies in developed markets will struggle to aid economic growth.
Woodford says: “Extraordinary monetary policy is a necessary evil in order to avert big crises, but many of the decisions made have been politically driven, not economically driven.”
Helicopter money involves central banks providing loans for governments to boost the economy through fiscal policies, such as infrastructure spending or one-off tax cuts.
“Once you move to helicopter money, it opens the door to a whole load more issues. Essentially, it would be a watershed moment. It should only be the medicine given when the patient is otherwise at death’s door,” says Woodford.
For this reason, as well as for market risks surrounding China, Woodford says he continues to maintain a cautious approach to investments.
He says: “I’ve been cautious on the state of the world for some time now and, if anything, I’m even more cautious today.”
The fund manager continues to see risks in the UK market, especially around big companies that rely on capital or debt to generate returns.
He says: “There are a number of bear value traps — companies that look enticing but could be a bad investment — especially among the UK’s largest companies, some of which are paying large, but unsustainable dividends.”
Woodford’s current sector allocation in his £8.77bn Woodford Equity Income fund doesn’t include oil, banks or mining companies and has very minimal exposure to manufacturing and engineering, but has exposure to healthcare and tobacco.