Alex Chappell

12th May, 2016

IC Insights

Meeting Neil Woodford

Jeans and a smart shirt… that surprised me. I mostly expected a Georgio Armani suit and slick back hair, similar to Gordon Ghekko from the film “Wall Steet”. Of course, things have moved on and don’t get me wrong, the atmosphere wasn’t so relaxed that everyone was horizontal, but neither was the trading floor full of “buy, buy,buy!” It felt like a group of people that were comfortable, highly skilled and in control.

Neil himself, certainly had an aura. Not a cocky complexion, but one of subtle arrogance, like the world best sports players have purely because they unambiguously believe in their own ability; Federer, Woods (in his prime), Ronaldo. This guy is the equivalent in the UK equity space, but importantly, he doesn’t blind you by talking in such complex jargon that you don’t know if he likes something or doesn’t.

He thinks from the ground up, explaining worldwide trends in a way others cannot, and importantly, so even my grandma (who by the way has no financial experience at all) can understand. Being able to explain complexity as simplicity demonstrates the depth and conviction of his views.

Instead of focussing on issues such as the failures of Central Banks, like many other economic forecasters, he lamented the confidence of the man in the street; “do you think the average person cares about what Mr Draghi says (Chairman of the European Central Bank)? People care about whether their standard of living is increasing, whether they can provide for themselves in old age, whether their children will have a better life than them, and whether they are paying down their debts and increasing savings. All of those factors, and the “all” is important, are moving in the wrong direction, and people are angry about it. This is why we are having the resurgence of an extreme voting culture, such as Trump vs Clinton, or the EU referendum.”

On threats, his biggest fear is the revisiting of the Chinese debt situation. Despite its subsidence in the tabloids, Neil believes this is an issue that will rear its head; “China has been on the biggest infrastructure binge in history, borrowing money to finance things which won’t yield enough return to pay down the debt (e.g. abandoned airfield and motorways that no one uses). Here is an interesting statistic – the Chinese have piled more concrete in the last 3 years that the US have in the whole 21st Century! Credit bubbles (debt bubbles) have always burst, and this will be no different. It cannot be smoothed over, and cannot be washed away. As with any bubble, it will burst, so the question is not, if, but when, and how big will the fallout be?”

It was a downbeat picture, certainly on a 1-3 year view, but actually when looking 5+ years ahead, he was moderately optimistic. On answering, what will get us out of this mess? Neil argued that the only way to turn the tides is to increase productivity, and the only thing that can answer is technology.

For those of you who aren’t familiar with Neil’s style of investing, he combines a selection of some of the UK’s biggest companies, with an element of technology based start-ups i.e. new companies with entrepreneurial inventions. Thus, he has an informed view on tech, believing he has already seen a lot of examples that will “radically improve people’s quality of living.”

As with any of these meetings, this is only one person’s view on what is going on in the world. Our job is to take this information, blend it with others, take our own view, and analyse how it could affect the returns of different asset classes. We are fortunate enough to have direct access to people like Neil, and although this makes my job fascinating, we will always strive to turn this into outputs for our clients. In summary, he identified a lot of negatives and some light at the end of the tunnel, which is reassuring as it reflects our current views and positioning. 

Neil Woodford is a fund manager who invests in UK equities (shares). He is widely recognised as one of the best in the industry and has vast experience spanning back to 1987. In 1991 he started a prosperous career with Invesco Perpetual before more recently, establishing Woodford Investment Management in 2014.