Investors should ignore the downbeat consensus view of the UK economy and its equities market – and instead focus on data that tells a very different story.
That was the message from former star fund manager Neil Woodford in his first major interview since 2021, which took place at Spear’s 500 Live, the annual conference from Spear’s magazine.
‘We’re very downbeat about our economy, we’re very downbeat about politics, we’re very downbeat about the state of the nation,’ said Woodford. ‘And I think many of those narratives are just fundamentally wrong.’
Woodford, who managed a combined £32 billion in assets across several funds at the peak of his tenure at Invesco Perpetual, pointed to GDP data which shows that, since 2010, the UK has outperformed European peers such as Italy, France and Germany, as well as Japan.
‘Real average post-tax earnings in the UK have risen by one per cent per annum since 2010. The tax burden on income is much lower now than it was in 2010,’ Woodford said, adding that he was not seeking to make a political point ahead of a UK general election that was announced less than 24 hours earlier.
However, Woodford also revealed that he believes the most likely outcome of the election is a hung parliament, rather than the Labour majority widely expected by political commentators and bookmakers. (Some bookmakers will only offer odds of 1/16 on a Labour majority, with a hung parliament priced at around 5/1.) ‘I'm pretty sure the consensus is wrong,’ said the former stock-picker, who generated market-beating returns during a career in which he notably swerved both the dotcom crash and the worst fallout from the financial crisis by cutting against consensus thinking.
Content from our partners
He cited three main reasons for his position:
- Woodford expects many voters who did not support the Tories in opinion polls or in local elections to end up voting for the party in the general election.
- The UK’s first-past-the-post system means that even large discrepancies in overall vote share may not translate to a similarly large discrepancy in terms of parliamentary seats.
- In order to achieve parity with the Conservatives in terms of vote share (let alone a parliamentary majority), Keir Starmer would have to achieve a larger swing than Tony Blair managed in 1997, Woodford believes. ‘That’s a hell of a gig,’ he said.
Neil Woodford on returning to the public eye
During the interview at Spear’s 500 Live, Woodford also discussed his decision to return to the public eye following the closure of his business Woodford Investment Management, which followed the 2019 collapse of one of the company’s funds.
Woodford said an ongoing FCA investigation meant that he had been advised to limit his commentary on events surrounding the fund’s closure, but he read from a statement during the interview: ‘Central to the FCA action is the accusation that I acted unreasonably by not challenging how liquidity was measured, and also the parameters of what was considered an acceptable liquidity profile for the [Woodford Equity Income Fund]. So, as we made clear in our press release, I can't accept that allegation.’
[See also: The best reputation managers for high-net-worth individuals]
Having avoided public appearances or media attention since a 2021 interview with the Telegraph, Woodford last month launched a blog, Woodford Views, which he told the Spear’s 500 Live audience had been motivated by frustration with economic analysis on social media and from journalists, which paid too little attention to facts and data.
‘I believe that facts and data inform economic debates,’ said Woodford. ‘They’ve informed me all through my career, and I think they can inform a wider audience.’
UK equities poised for bull run
Woodford also said he believed UK-listed equities are poised for a comeback after two decades in which pensions regulation had encouraged the managers of defined benefit schemes to sell off their UK equity holdings.
‘What you now have is an absence of sellers and, I think, a healthy, slightly increasing balance of buyers. The UK equity market has already shown signs this year that it’s beginning to break out of this long decline that it's had for 20 years. So I think the market can rise to a much higher level, and a much higher valuation.’
[See also: The best wealth managers for high-net-worth individuals]
The government should not seek to interfere too much with the economy, said Woodford. However, he admitted that some changes would help the UK equity market and the economy to function more efficiently.
UK pension funds ‘should be mandated to buy domestic assets’, he said. ‘I would get rid of stamp duty on share purchases. I would ban short-selling on anything outside of the FTSE 100. And what else would I do? I would set up a seeded sovereign wealth fund.’
Bonfire of the Bank of England?
Woodford also advocated for a rethink of the way the Bank of England, its Monetary Policy Committee (MPC) and the Office for Budgetary Responsibility (OBR) approach modelling and projections. ‘The government bases its tax and spending decisions on what the OBR says, [but] the OBR haven't been right about the economy for a long, long time. The MPC decisions on interest rates are guided by what their model tells them will be happening to the UK economy; that's been wrong.’ (UK GDP growth has significantly out-performed recent projections.)
‘I think better information about what's going on in the economy will result in better policy decisions.’
The model that the MPC uses, Compass, ‘is broken’ Woodford said, adding that his stance was consistent with that of former Federal Reserve chair Ben Bernanke, who had been commissioned to carry out a review.
‘What it tells me is that I'm not the only one who thinks that the conventional thinking in the MPC, the OBR etc. is now giving the wrong answer.’
Watch the full interview here:
Read Neil Woodford's blog, Woodford Views
Spear’s 500 Live 2024 is presented in association with our partners, Multrees, Henley & Partners, Sotheby’s International Realty, Stewardship, CAF, The Kusnacht Practice, Invest Barbados, Institut auf dem Rosenberg and Justerini & Brooks.
