The FTSE 100 remains overvalued and investors who believe it represents a flight to safety are going...
The FTSE 100 remains overvalued and investors who believe it represents a flight to safety are going to be disappointed, according to Neil Woodford.
Woodford, head of investment at Invesco Perpetual, said a desire to limit tracking error has led to an increasingly large proportion of the market being invested in the FTSE 100. In 1993 the FTSE 100 made up 30% of the market but by 2003 that has risen to 53%.
He argued small and mid cap companies now offer the most reasonable valuations by comparison to blue chips. Woodford believes there are plenty of small and medium companies with good quality defensive characteristics.
He added contra-cyclical companies whose fortunes are not correlated with the market economy are set to perform well going forward.
He pointed to insurance aviation, marine underwriters and the biotech sector as having good potential.
Woodford said the prognosis for global markets is bleak and consensus forecasts on corporate profits are 'wholly unrealistic'. He predicted spending by companies will dip because of the excess capacity in the economy.
He forecast a further increase in unemployment in the US adversely affecting the consumer's willingness to spend.
Woodford added that increasing litigation costs, continuing problems with accounting issues and more incidences of industrial action, combine to make a gloomy outlook for the world economy.
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