Global stock markets might be up but Neil Woodford, one of Britain's most successful fund managers, is still feeling gloomy about the world economy. Key indices like the FTSE 100 and the S&P 500 are up around 10% since June. But in a recent note to investors Woodford says the recent market rally has done little to change his outlook.
"As we have gone through 2012, it has become clear that the economic headwinds have increased in strength rather than receded the eurozone crisis has rolled on and become more intense while the US economy, which grew rapidly throughout the winter, has slowed through the spring and into the summer."
As a result Woodford, who manages Invesco Perpetual's Income and High Income funds, favours defensive, blue-chip firms that pay out decent dividends. However, this has been a very crowded trade of late. And although Woodford got in early he has been saying the same thing about dividend yielders for about four years some pundits warn that defensive stocks are a bubble.
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Woodford disagrees. "Our strategy for the fund remains unchanged we continue to focus the portfolio on what we believe to be fundamentally cheap companies, many of which are termed as blue chip or the 'new sovereigns', and where we believe valuations continue to underestimate their ability to grow through a prolonged period of economic stagnation."
Woodford's record is impressive. Both of his funds have outperformed the market over one, three and ten years. His success hasn't gone unnoticed by investors. They've flocked to him and he now manages almost £20bn of assets.
But within an overall good performance, Woodford has experienced plenty of torrid times. For example, he underperformed in the first half of 2011, when investors favoured more risky growth stocks, and was criticised for being too cautious.
Right now some investors are questioning two of Woodford's biggest holdings, Vodafone and Imperial Tobacco, both of which have fallen heavily in the last few weeks. But Woodford is sanguine about their long-term prospects.
He notes that Vodafone continues "to make progress in key areas including emerging markets". Meanwhile he is happy to keep faith in Imperial Tobacco's "strong record of delivering growth".
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