Neil Woodford's Brexit strategy

There are just 10 days to go until polling day in what will be one of the most significant and divisive votes in recent British history. Debate and analysis around the European Union (EU) referendum dominate the mainstream media, and will do up until 23 June, and beyond.

Investors will have their own strategies to deal with whatever the market throws at them, but how do star fund managers behave? Neil Woodford reveals his tactics as D-Day approaches.

"Given the media and political focus on 'Brexit' it is tempting to keep one's head down and avoid saying anything controversial," wrote Woodford Monday. "However, I believe that it is important that our investors understand how we are contextualising a 'Remain' or 'Leave' vote in our investment strategy for the CF Woodford Equity Income Fund."

Remember, Woodford had already commissioned some research several months ago and, despite admitting short-term uncertainty would "weigh on us all", continues to stand by its initial conclusions that it is impossible to construct a convincing long term economic argument in support of either 'Remain' or 'Leave'.

The nub of Woodford's thinking is that there are bigger concerns affecting the global economy than Brexit. Policymakers face a "complex coalition of linked challenges" such as excessive government and consumer debt, excessive corporate debt in China, excess capacity and deflation, rapidly ageing demographics, very weak productivity growth, and a lack of investment.

Don't forget unfunded retirement commitments in the west, inadequate savings, wealth inequality, growing political populism, and challenges posed by the Chinese credit bubble and implications of its rapid deflation.

"Many of these issues will exert a more profound influence over the UK economy in the long run than will our membership of the European Union," argues Woodford. "These problems will not be resolved by our membership of the EU nor will they be resolved through leaving it."

Instead, he believes the solution requires co-ordinated global policy action, the likes of which we have not seen since the Bretton Woods Conference 72 years ago.

"…it is these issues (and others) which have framed our portfolio selections in the fund. That is why the portfolio strategy will not change on a 'Remain' or 'Leave' vote."

Woodford also reminds us of the global complexion of his equity income fund portfolio. It is wider global and sectoral trends that will drive profits, cash flows and dividends rather than the UK economy.

It's also a key reason why Woodford thinks the fund will continue to deliver high, single-digit annual returns over a three- to five- year time horizon.

"The portfolio is invested in businesses that we believe will deliver this level of growth despite these significant macro headwinds I have described and equally important, these companies trade on valuations which do not reflect that capability.

"As such, we remain very confident of delivering very attractive returns to investors over that long term time horizon, regardless of the outcome of the forthcoming referendum."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.