I caught up with Neil Woodford at his office in Oxford last week. He is not having a particularly good time of it at the moment. For the third time in his career, he has endured a period of poor performance.
Despite the previous two periods being more painful, he has suffered exceptionally poor press being much more high profile now.
The media spends a vast amount of time extolling the virtues of long-term investment but it writes an amazing number of short-term stories.
I am reminded of Anthony Bolton’s difficulties in 2011/12, when his Fidelity China Special Situations trust fell to around 75p. The media scared hundreds of investors out of the trust at the time, meaning many have not enjoyed the ride up to £2.37 today. Bolton retired, having beaten the China benchmark.
All active fund managers go through difficult periods. When you have faith in the manager’s talent, and the difficult period is more to do with their style being out of favour than loss of ability, these points present spectacularly good buying opportunities.
Woodford’s two other periods of poor performance – in the run-up to the dot.com bubble, as he refused to buy soaring tech stocks, and in early 2009 when he lagged the recovery from the financial crisis – proved just that.
Woodford’s approach is a combination of top-down and bottom-up.
This means he focuses on the merits of individual companies, while also taking a view on what areas may or may not perform well against the economic backdrop. It is important to look at his portfolio through his macroeconomic lens.
Currently, he believes the market is too optimistic on global growth but not optimistic enough on the UK. Europe, for example, is still responding to extraordinary monetary policy and continues to battle multiple structural problems.
Elsewhere, many investors believe China’s growth will never falter despite unprecedented levels of debt.
Woodford is waiting for the eventual Minsky Moment, at which point China will collapse, taking much of the rest of the world with it.
Meanwhile, Brexit dominates the headlines and overseas investors have ignored our island because of it. This is despite a strong labour market, record high job vacancies, tax collection growing strongly and robust business investment.
Woodford notes that even unemployment in the North-east is almost the lowest it has ever been and the banks – broken for so long – are largely repaired and have resumed lending. He believes most UK businesses will navigate the major issues with less difficultly than most assume.
He draws comparison with the millennium bug, which had many tearing their hair out over the disaster it was expected to cause.
So, what does this mean for his portfolios? Unlike the consensus, he has moved strongly into domestically-focused UK companies, which he feels have not been this undervalued since 1992.
He has moved money into bank stocks for the first time in 10 years and has increased exposure to disruptive businesses, such as Purplebricks, healthcare and house builders. He even has a new position in British Land, telling me he could not remember the last time he had a property company like that in his portfolio.
Has Woodford lost his way, as the press would have you believe? No. I have known Woodford for a long, long time. I supported him through his last two poor patches and he has gone on to outperform the FTSE All Share index by 360 per cent and 30 per cent since the dot.com bust and 2011 respectively.
Over his career, Woodford has outperformed the FTSE All Share by around 4 per cent per year on average. I see no reason to bet against those numbers today.
Of course, I could be wrong, but sometimes you have to be doggedly stubborn and determined. This is that time for me.
Mark Dampier is head of research at Hargreaves Lansdown