Neil Woodford has stood by his pre-election buying spree of domestically-focussed UK stocks in the face of the Conservatives shock loss of its majority in yesterday’s general election.
In fact, the star fund manager argues the result, which is set to see Theresa May form a deal with DUP, could improve the outlook for the UK due to looser fiscal policy and the prospect of a softer Brexit.
In May, Woodford announced he was taking a “contrarian” approach to the UK initiating positions in Lloyds, Taylor Wimpey and Barratt, all of which suffered losses in early trading this morning, while citing a stronger Conservative majority as positive for his outlook.
“I expected the Conservative’s to secure an increased majority – clearly, the party and the pollsters had anticipated the same outcome,” Woodford said today in response to the result.
“A lot of extreme conclusions have been discussed by market and media commentators. From where I’m sitting, however, economically not a lot has changed. In fact, in some respects, the outlook for the UK economy has actually improved.”
The Tory-led administration will likely adopt a more stimulative fiscal policy, including a change to the cap on public sector pay, which will be positive for UK economic growth.
Woodford adds that an alliance with DUP points to a softer Brexit.
“In wooing an alliance partner, the Tories will have to offer some concessions and I would imagine the DUP will be keen to secure an open border with Ireland as an important part of those negotiations.
“Membership of the EU Customs Union could be seen as a minimum requirement if a deal is to be struck with the DUP and, in turn therefore, the probability of a softer Brexit outcome has risen.”
He adds that while May has confirmed Brexit negotiations should commence as planned in a few days, it is unlikely anything important will be decided until after the German elections in September. “So there is plenty of time for the UK’s political dust to settle.”
A diminishing chance of a second Scottish Independence referendum is also positive, Woodford says.
Woodford confirms the result means no major changes to his investment strategy.
“I remain cautious on the outlook for the global economy, but more positive about the prospects for the domestic economy than an increasingly bearish consensus.
“If anything, with its implications for looser fiscal policy and a softer Brexit, the election result has made me even more optimistic about the UK economic outlook and the porfolios are positioned to benefit from this outcome over the long term.”
‘Neil isn’t a gambler’
Fund selectors have reaffirmed their faith in the star fund manager arguing his big bet on the UK economy hasn’t changed their view on him despite the UK election not panning out as anticipated.
FundCalibre managing director Darius McDermott says Woodford’s views on Brexit and the UK economy were based on an assumption that the Conservatives would deliver a stronger majority.
“What Neil isn’t is a gambler. He would have made those investment decisions based on fundamentals of those companies, their ability to pay dividends and the future outlook for those companies.”
Demand for housing in the UK hasn’t deteriorated just because of today’s election result, McDermott points out. “I don’t think realistically the investment case has changed for them.”
Tilney Group director Jason Hollands argues Woodford is a “buy and hold investor”.
“Consensus forecasts expect the economy to pick up again in 2018. I therefore don’t thing the election is a game changer for this way he has tilted his portfolio given he is a long term, buy and hold investor.”
Ryan Hughes, head of fund selection at AJ Bell, agrees that Woodford is someone “happy to look at the bigger long term picture” rather than getting sidetracked by politics.
“While it is likely there will be uncertainty and some volatility in the coming weeks and months as investors try to build a picture of what the new political landscape looks like, good companies don’t change overnight and they will go one generating profits and dividends.
“The key is to invest in managers that have the skills and patience to capitalise on this and I’m confident that Woodford will be able to successfully navigate his way through these potential stormy waters.”