Neil Woodford 'even more optimistic' after election shocker

As Friday wore on, we heard a tired-looking Prime Minister Theresa May promise "certainty", claiming that only the Conservatives and Democratic Unionist Party (DUP) had the legitimacy and ability to provide it. And, with time to digest another election shock, star fund manager Neil Woodford has given his view on where this leaves investors.

Woodford admits that, like most of us, he believed at the start of this election campaign that the Conservatives would walk it with an increased majority. A hung parliament was never an option.

However, it's not all that bad.

"From where I'm sitting, however, economically not a lot has changed. In fact, in some respects, the outlook for the UK economy has actually improved," says Woodford, who manages the £10.2 billion CF Woodford Equity Income fund.

Reasons to be cheerful

On fiscal policy, he expects a new Tory-led administration will adopt a more stimulative position. Without the mandate May desired, she'll have to adopt a looser fiscal strategy – "borrowing more and spending more".

"Overall, this will be positive from the perspective of UK economic growth."

Agree a deal with the DUP and a parliamentary majority means the administration will function effectively. It also means a much-feared 'hard Brexit' becomes less likely.

"In wooing an alliance partner, the Tories will have to offer some concessions and I would imagine the DUP will be keen to secure an open border with Ireland as an important part of those negotiations," explains Woodford.

"Membership of the EU Customs Union could be seen as a minimum requirement if a deal is to be struck with the DUP and, in turn therefore, the probability of a softer Brexit outcome has risen."

And don't worry about Brexit negotiations due to begin on 19 June, either, says the fund manager. He thinks none of the big decisions will be made before German elections in September, giving "plenty of time for the UK's political dust to settle".

A slump in the pound is "modest", too, according to Woodford, although it's boosted dollar earners and nudged domestically-exposed businesses lower.

A soft Brexit?

"Overall, however, the market's response has been relatively measured, not least in the currency and bond market," he writes.

"From the perspective of my investment strategy, the election outcome requires no major changes. The fundamentals of the businesses within the portfolios remain very attractive.

"I remain cautious on the outlook for the global economy, but more positive about the prospects for the domestic economy than an increasingly bearish consensus.

"If anything, with its implications for looser fiscal policy and a softer Brexit, the election result has made me even more optimistic about the UK economic outlook and the portfolios are positioned to benefit from this outcome over the long term."

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.