Markets are making the same mistakes as they did during the dotcom bubble and the 1990s recession, says celebrity fund manager Neil Woodford. "But this time the bubble has grown even bigger and more dangerous", he told Claer Barrett and Kate Beioley in the Financial Times. There are "so many lights flashing red that I am losing count".
We have seen "the product of the biggest monetary policy experiment in history", but investors have "forgotten about risk", which is "playing out in inflated asset prices and inflated valuations". Woodford points as evidence to bitcoin surging past $10,000; European junk-bond yields yielding less than US Treasuries (government bonds); historic low levels of volatility; and the sheer amount of money being put into triple-leveraged exchange-traded funds.
But the current state of the markets gives him the chance to prove his worth as a contrarian investor, he says. Brexit is a prime example. Where other fund managers may stick their heads in the sand, Woodford believes Brexit is a buying opportunity. "I've rarely witnessed such an overwhelming consensus view - which I believe to be profoundly wrong - that the UK economy is going to hell in a handcart", he says.
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He has been buying companies that he see as being unnecessarily discounted for an "economic Armageddon" brought on by Brexit - banks (Lloyds is now the fifth-largest holding in his flagship equity income fund), retailers such as Next and housebuilders such as Taylor Wimpey and Barratt Developments..
Investors in Woodford's fund - who to be fair, have been given many reasons to question his judgement over the past 18 months - will be keeping a close eye on things. His £8.3bn equity income fund has fallen by 1.4% so far this year, and is the worst performer among its peer group on a one-year basis. The FTSE All-Share index, by contrast, has risen by almost 10% this year,
The poor performance is down to a few disasters, such as the 65% one-day share-price crash of doorstep lender Provident Financial, and the struggles of AstraZeneca, which saw its largest-ever one-day fall after the failure of a lung cancer drug trial. However, other Woodford favourites such as tech company Allied Minds, the AA and Imperial Tobacco, have also suffered setbacks.
When asked how he can reassure investors that he will be proven right, Woodford emphasises that his long-term strategy will produce the kind of returns his investors want.
He concludes by warning again of the danger of chasing stocks that are going up. "You're buying into things that are profoundly, fundamentally overvalued, and you're running away at the same time from businesses that are profoundly, fundamentally undervalued".
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