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24 Aug 2016

Leading fund manager to reveal £1trillion pensions black hole

One of the most revered stock pickers in the country is about to issue a stark warning about the combined pension deficits threatening the UK stock market, This Is Money reports.

Investment guru Neil Woodford is due to release the warning on his influential blog, making him the first leading fund manager to openly discuss the matter of pension fund black holes.

Over the past few months, Woodford has sold his £163million worth of stock in BAE Systems, as well as a £300million holding in BT. This move was partly due to the fact that he was concerned about the shortfalls in their ‘defined benefit´ retirement schemes, which Woodford says have “come unstuck.”

“At the margin, concerns about their pension deficits have reduced the level of conviction we have in stocks such as BT and BAE Systems,” he noted.

As the publication explains, British companies have struggled with pensions deficits for some time. However, the row over Sir Philip Green´s black hole in the BHS pensions fund - to the tune of £570 million - has brought the issue into the spotlight; furthermore, the recent Brexit vote saw the Bank of England cut interest rates and launch more money printing, increasing deficits further.

Justin Urqhart Stewart, of Seven Investment Management, agrees with Woodford that small investors should be “very” worried, stating: “Although we have lived with deficits for a long time, they are potentially very dangerous.”

This view is supported by the figures. Researchers at Lane Clark and Peacock, for example, found the FTSE 100 £46 billion in the red by the end of July this year. What´s more, a report by Hymans Robertson suggests that the entire shortfall across UK plc has gone beyond the £1 trillion mark.

Copyright M2 Bespoke 2016

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