Invesco Perpetual star manager Neil Woodford believes equity markets can still provide meaningful returns despite the muted economic environment.
Writing in the Telegraph, Woodford says investors are currently facing difficult choices as the fallout from the financial crisis continues to be felt.
The Invesco Perpetual head of investment says while the low current bond yield may be a reflection of investor risk aversion, he questions whether there are better opportunities on offer.
"Unprecedented and unconventional measures were needed to rescue the financial system, interest rates are at historic lows and the credit worthiness of governments themselves has been called into question," he says.
"This leaves investors facing difficult choices, but there are convincing arguments in favour of specific stocks at this time. UK equities, in the shape of the FTSE All Share index, are yielding just over 3.4%, which is well above the yield on government bonds.
"In recent times, the crossing of equity and bond yields has proven to be a reliable buy signal for stocks and I think it is fair to say it does highlight the value in the market."
While Woodford says this does not take into account risk, he believes the combination of a high and potentially rising yield and instances of material undervaluation are "more than adequate compensations".
"Stocks can be mispriced in the short and even medium term by the ‘noise' of incessant data, announcements and opinion, but over the long term it is fundamentals that matter," the manager adds.
"Separating economic reality and stock market prospects is also important. While the two can never be completely divorced, a weak economy does not necessarily mean weak equity performance. The economic outlook is tough and will stay so for some time.
"But the current yield available on selected stocks, combined with dividend growth, can provide decent returns. If you can invest at very low valuations, returns could be even more meaningful.
"Equity markets offer an attractive yield for investors looking for a better return on capital. This return is not risk free, but a selective and patient approach helps to mitigate risks. In my view, present valuations suggest the risk is worth taking."
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