Fund manager Neil Woodford says that Britain is in for a difficult few years. Woodford, whose success at Invesco Perpetual during the last 20 years has made him one of the UK’s most famous fund managers, thinks that Britain’s growth will be lower than the government expects.
And while he hails the chancellor’s “politically brave” spending cuts program, he believes that slow growth means the “deficit will come down more slowly”.
When it comes to interest rates, Woodford has sympathy for the Bank of England and predicts that they will not lift the benchmark rate from its record low of 0.5% anytime soon. “Putting rates up won’t change inflation because most of this inflation has been imported from higher energy and food prices rather than domestically. Raising interest rates will crush the consumer.”
Yet his bearish view has not helped his recent performance. His Income Fund – he also manages Perpetual’s High Income Fund – is filled with ‘defensive’ picks and has underperformed his peers by 2.2% so far this year. Woodford admits he is “surprised” by the strong performance of some UK equities in “a period of disappointing news”.
Speaking in a live webchat, Woodford explained: “The reason we have had a difficult period is my sense of valuations has not chimed with the market. The market has been bidding up the price of stocks focused on economic recovery and ignoring sectors out with that.”
He remains bullish on pharmaceuticals and believes that the market is overly negative about the industry. “The risks in pharma are well-rehearsed, while the opportunity set which includes an ageing population, increased prevalence of diseases that these drugs treat, and unmet demand from emerging markets are downplayed.”