Star fund manager Neil Woodford has sought to reassure investors about the financial impact of Donald Trump’s ascendancy to the White House while not downplaying the political significance of his unexpected victory.
‘We’ve had our fair share of political shocks recently but this one, arguably, trumps them all,’ quipped Woodford on the political novice who overnight has become the world’s most powerful man.
The Citywire AA-rated manager said the shock result – following from the equally disruptive Brexit vote in June – encapsulated the discontent and frustration felt by many in Western democracies.
‘In that respect, as much as this election result is a vote for Trump, in my view, it is also a vote against the political establishment from a large part of society that is angry that policy has done little to help it since the global financial crisis,’ the manager of the £9 billion Woodford Equity Income fund said in a posting on his website.
He said it illustrated once again that investors had to be alert to further political upsets. ‘There are several significant elections looming in Europe over the next 18 months, which could be profoundly important for the future of the eurozone project.
‘It would be wrong to assume that America has a monopoly on disgruntled voters and we will keep a very close eye on political developments,’ he pledged.
Woodford was himself reassured by the ‘relatively muted response from markets thus far’. This showed investors had learned not to panic at surprise developments.
‘It was wrong to overreact to the Brexit vote, and in my opinion, it would be wrong to overreact today,’ said Woodford.
Trump could change
Addressing fears that Trump could pursue an aggressive, protectionist policy that would harm the global economy, Woodford expressed his hope that in office the Republican candidate would temper – or be forced to moderate – some of the extreme things he had uttered in 18 months of campaigning.
‘As always seems to be case, the constraints of office should mean that what he can actually do as president is likely to be much more moderate. Lots of things that are said on the campaign trail cannot be delivered,’ Woodford cautioned.
Nevertheless, there would be consequences.
Pause in globalisation
‘The election result could, however, puncture the love affair that the market has had this year with emerging market equities and debt. Globalisation will come under the spotlight under a Trump administration and I believe we should expect a greater focus on domestic political priorities at the expense of free trade and globalisation.’
It also made a US interest rate rise in December less likely, he said. The Fed has been under pressure to normalise monetary policy and lift rates for the second time since the financial crisis, against a background of robust employment and strengthening economic growth.
‘The Fed is likely to have more than half an eye on its role as global financial market policeman and the uncertainty that this election result creates for the global economy and, in particular for emerging markets, could weigh on its policy decision in December,’ said Woodford, who has consistently believed that interest rates in the US and UK would remain lower for longer.
‘Overall, I expect the momentum in the US economy to continue. I expect modest growth in 2017, relatively muted inflation and, with the prospect of a slightly more stimulative fiscal policy and the absence of rate hikes, I don’t think a Trump presidency foreshadows a US recession,’ he said.
Woodford Equity Income’s performance has been good since its launch in June 2014. According to figures from Woodford Funds, it generated a total return of 31.5% up to the end of September, beating the FTSE All Share’s 12.5% gain.
This year, however, it has been held back by its large 38% exposure to healthcare stocks, which have suffered in response to Hillary Clinton’s promise to target excessive drug prices.
With that threat removed and with California also voting down a ‘proposition 61’ law that would have limited prescription prices in the state, healthcare and biotech stocks have jumped today.
‘From a sentiment perspective at least, the news should be positive for this important part of the portfolio,’ said Woodford, adding: ‘I remain confident in the positioning of the portfolios and their ability to deliver attractive returns over the long-term.’