Neil Woodford answers ii readers’ questions

We asked you for questions to put to fund manager Neil Woodford, and you responded in your droves! Here are Neil’s replies, including his thoughts on current hot topic – blockchain technology.

Lee Wild, interactive investor:

Neil, interactive investor readers have been sending in their questions for you. The first one: with the world in so much debt, when do you predict the next financial crash will happen?

Neil Woodford, fund manager, Woodford Investment Management:

I don’t really go in for calling markets in the short-term or the long-term, what I’m much more focused on is the performance of the businesses that we’re invested in, and the belief that in the long-term that will reflect … that will be reflected in the valuation of those businesses.

In the short-term, having said that, I think markets are going through a difficult period. I think it could be that the excesses that we’ve seen build up in recent months wash out of the system. So, we could see the last few days of market volatility stretch into the future and continue to correct to a more normal level.

Lee Wild: Another question from a reader, why invest in healthcare?

Neil Woodford: Brief question, could be a very long answer to that, but fundamentally healthcare is a profoundly attractive growth market. The demand for healthcare grows substantially ahead of broad economic growth, and the reason is that in developed economies aging populations drive that rapid growth because we consume most of our healthcare later in our lives. And as the population … as the demographic profile of all developed economies ages, so the demand for healthcare will grow more rapidly.

Within that, we think there are very attractive returns within that sort of overall attractive growth profile. There are very attractive returns available to innovation. And, essentially, what we’ve backed in healthcare, whether it’s in devices, drugs, or diagnostics, is innovation. We’ve backed innovation in big companies and in small companies and we think the returns to innovation will be very attractive.

Why do we say that? Because innovation is how you deliver better healthcare outcomes to patients … and it’s also how you manage the budgetary pressures that are inexorable and inevitable in all developed economies. So, innovation helps you deliver better health outcomes at a lower cost essentially, and that’s why we’ve backed healthcare.

Lee Wild: Are you concerned about the impact of Brexit on UK companies?

Neil Woodford: The media, politicians and other sort of commentators are utterly obsessed with Brexit. Of course, we are aware of Brexit and factor Brexit into our thinking. We’ve written extensively to our investors about what we think about Brexit, and I think that people have become too pessimistic about the economy because they are so myopically focused on the politics of Brexit.

The reality is that in the background, the economy is doing pretty well. Businesses are just getting on with the business of running themselves and delivering profits, earnings and cash flows.

The UK economy is relatively robust. There are a record number of people in work and there are a record number of job vacancies here in the UK. 400,000 people more in full time employment at the end of 2017 than there were at the start of 2017. These are all symptoms of an economy that’s just getting on with the job of doing what economies do and not obsessing about Brexit in the same way that politicians and commentators are.

So, albeit that Brexit is important, and you know, the tos and fros of the negotiations will be written about and obsessed about for months to come, the reality is that the economy just ticks along okay actually, and consumers tick along. And outside of the sort of, you know, the London bubble, most people in this country have had enough of Brexit. They’re just bored with the whole Brexit thing, and they just want to get on with their lives.

My own view is that sense will prevail. The extreme outcomes that people tend to sort of coalesce around are to me the least likely. What is most likely is some sort of negotiated settlement that suits the interests of both the European Union and the UK. There will be compromises on both sides of that negotiation. But ultimately that’s what negotiation is all about, it’s starting far apart and meeting somewhere in the middle, and that’s what I think will happen with Brexit, and is what we said would happen all along. So, I’m sort of more pragmatic about Brexit than I think most people are.

Lee Wild: You’ve invested in Fintech companies, is this an area you truly believe in?

Neil Woodford: We have invested in areas where we can see disruptive Fintech models capturing market share and disrupting established markets. So, it’s not a universal answer, it’s very stock specific. We think blockchain is a very interesting technology which does have application in the financial services sector, and indeed may strengthen the hand of incumbents rather than facilitate the arrival of insurgents. We haven’t yet worked out quite how … who benefits the most if you like from the application of that technology, which we think has potential in this space.

In the meantime, we have backed a number of young Fintech companies that have done very well actually, and which we are very confident about.

Lee Wild: If you were beginning your investment journey now, what would you wish you knew compared to when you started?

Neil Woodford: I think successful fund management actually is, as I said, this balance between arrogance and humility. It’s equally also … successful fund management is also informed by experience, knowledge and a few grey hairs actually. So, in a way, when I first started, I wish I knew then what I know now about how to run money and how to stick to your knitting, and how to appreciate what good looks like from an investment point of view. I’ve had to learn that on that 30-year journey, but I think I know more about it now than I did when I first started.

So, the shorthand answer to that is that I wish I had known at the start of my career what I know now. And I hope to keep learning in this business, so it is an activity that you always, I think if you apply yourself, get better at over time.

This is the transcript of a video filmed in February. To watch the entire series of video interviews with Neil Woodford, please click here.

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