EquitiesMay 29 2013

Woodford cautious as equity rally continues

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Invesco Perpetual’s Neil Woodford has said he is increasingly cautious about the outlook for stockmarkets as investors seem to have become very relaxed about a “still very challenging” environment.

In a letter to shareholders in his Edinburgh Investment Trust, Mr Woodford said equity valuations were “no longer as compellingly cheap as they were a year ago” and said the stockmarket “may be vulnerable to some near-term volatility”.

However, the manager, who delivered a total return of 22.4 per cent on the trust in the year to end March 2013 compared to the total return from the FTSE All-Share index of 16.8 per cent, said some high quality, dependable growth stocks, such as healthcare and tobacco stocks, “remain significantly undervalued”.

A strong driver of performance on the trust was the pharmaceuticals sector, where Astrazeneca and Swiss firm Roche rose strongly through the year, while the manager also highlighted Reckitt Benckiser and BT as strong performers with potential for further growth.

The trust’s outperformance was boosted by its zero weighting in the mining sector and Mr Woodford said he was “increasingly seeing evidence that the ‘risk-on’ crowd is slowly falling out of love with it”.

In the results statement from the Edinburgh Investment Trust, chairman Jim Pettigrew said the board was closely following the investment market following the RDR to see if there would be any impact on the demand for the trust, but said it was “too early to draw final conclusions about how RDR will play out for investment trusts”.