We’ve heard plenty about the upheaval that might result from a Scottish Yes vote. Royal Bank of Scotland and Lloyds Banking Group have already made contingency plans to move south in the event of secession, and Standard Life says it would move parts of its business.
But if the Scots say No, does that mean everything will be just fine? Not according to top investor Neil Woodford, it won’t!
In a note to clients, the former manager of the Invesco Perpetual Income and High Income funds, who now runs his own CF Woodford Income fund, has suggested that even a No vote followed by the further devolution promised by all three major Westminster parties could lead to a breakdown in governance.
The devolution uncertainty
While the so-called “devo max” should hand to Scotland a good deal of the power wanted by the Nationalists without the headache that would be Scotland’s currency plans, Mr Woodford sees “protracted and potentially acrimonious” wrangling extending way beyond the next General Election and probably into 2016. And he sees the possibility of demands for devolved powers from other regions.
He says “I believe that it is now probable that we are about to witness the fragmentation of governance within the United Kingdom – effectively, the federalisation of the UK regardless of who wins on Thursday“.
That could raise many uncertainties, and investors don’t like those — and it could make the UK a less desirable place to invest.
Defensive investment
Mr Woodford does say that he is confident in his own portfolio, so which shares has he plumped for to help cope with the “period of extraordinary economic and political uncertainty” that he predicts?
He holds shares in AstraZeneca, although he did reduce his stake earlier in the year to lower his fund’s weighting to 7.5%. But that’s still a sizeable holding, and Mr Woodford famously opposed the attempted takeover by Pfizer when so many big investors just wanted a quick short-term profit. The fund also has a decent amount of GlaxoSmithKline shares tucked away, so he clearly sees a strong future for the pharmaceuticals sector.
Tobacco is growing in unpopularity in parts of the world, but Mr Woodford holds shares in both British American Tobacco and Imperial Tobacco (and has recently topped up on the latter). Volumes of cigarettes might be falling, but smokers are moving upmarket to higher-margin brands and our big two companies are paying out decent dividends.
A balanced portfolio
Aerospace and defence gets a nod too, with BAE Systems and Rolls-Royce Holdings both featuring strongly, and Mr Woodford also also holds Centrica and BT Group — that’s nice diversity overall.