Invesco Perpetual manager Neil Woodford is positioning his UK portfolios for a lack of global cyclic...
Invesco Perpetual manager Neil Woodford is positioning his UK portfolios for a lack of global cyclical recovery.
Woodford has been prepared to go against consensus expectations in the past, most recently when he refused to hold any telecoms during the rise in new economy stocks.
He said neither the US, UK, Japanese nor European are able to supply recovery this year. Woodford, who runs the £2.78bn High Income and £819m Income unit trusts, said: 'We are in for a continuation of the difficult period we have endured for two or three years. It is unrealistic to expect earnings recovery given the US is in no position to bounce back, Japan is in a mess and mainland Europe in no position to help out in the short term. The world economy faces a low growth future.' In the UK, he feels, the consumer is keeping the economy ticking over but adds that there is evidence of the consumer slowing down.
As a result he is focusing on stocks with earnings certainty and visibility such as gas, electricity, water and tobacco companies. Woodford believes the backdrop is unprecedented in his career as the US has had a profits and a capex recession but not an economic one.
Recession is usually characterised by a slump in consumption, slower government spending and a set back in investment spending, Woodford said.
He added: 'We have seen anything but consumer retrenchment. That is because the US consumer has responded to the policy objective designed and built in by the Fed and by the Bush administration.
'The aim was to prevent the economy from going into recession in 2001 by cutting rates aggressively and providing a lot of liquidity in the system and spending a lot more in terms of fiscal policy. It did a very good job ensuring that did not happen but a price has to be paid for that.'
As financial excess by the consumer has not been rebalanced so there is actually no room for consumer spending to spark a new round of aggressive growth, Woodford believes.
Added to the highly geared consumer balance sheet, is growing unemployment, due to corporate America rehabilitating its balance sheet, and virtually nil wage growth, according to Invesco Perpetual.
'What you face therefore is an environment that won't bounce back strongly, particularly considering capex is unlikely to bounce until 2003,' said Woodford.
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