The Investor 90

The referendum vote against the UK’s membership of the European

Union sparked significant turbulence in financial markets.

Neil Woodford, a UK fund manager, and Stuart Mitchell, a European

fund manager, give us their views on what this means for investors

ANALYSIS

e have been clear

in our thinking

on the economic

implications of

Brexit for some

time.The independent report that we

commissioned on the subject concluded

that the UK’s long-term economic future

would be largely una ected by a decision

to leave the European

Union.We

stand by

these conclusions.

That is not to say there won’t be

challenges in the near-term.There will.

We now face a period of uncertainty as

the exact terms of the UK’s exit from

Europe are negotiated. But the long-term

economic path for the UK economy,

and indeed the global economy, will be

uninterrupted by what has happened.

With a bit of time and distance, I think

people will take a more measured

view that it is not going to change the

fundamental trajectory of the UK

economy over the next three to ve years.

What will happen next for the world

economy is that growth will continue

to slow.That has to be a headwind for

corporate pro ts. Commodity prices will

remain weak and China is going to slow

– indeed we think it is slowing already,

despite the extra stimulus we have seen.

In the UK, we are probably going to see

the economy slow a bit more than we

would have seen had the vote not taken

place, but I do not expect a recession.

I think this is a watershed moment for the

whole of Europe. It is not just a narrow,

UK-centric thing.

I believe the continuing in uence

coming from Brussels and the ever-closer

union advocates are going to be in retreat

now across Europe. If Europe is going to be

able to tackle the social, political and

economic challenges that it now faces,

there is going to have to be a profound

change of direction.

It is appropriate to remain optimistic

about a select group of equities that can

deliver high single-digit returns each

year over the next three to ve years.The

course of these businesses is broadly as

we thought it was before the UK voted to

leave. Consequently, the portfolio strategy

will not change. It was designed for a

challenging world, characterised by low

growth, de ation, debt problems, weak

productivity and troubling demographics.

If you accept what I am saying – that the

prospects are unaltered but prices are

lower – then by de nition that means

the investment opportunities are even

more attractive.

I think this is a

watershedmoment

for thewhole of

Europe

Neil Woodford

Income Distribution

UK Equity and UK High Income

THE INVESTOR