Neil Woodford investment commentary
12 Feb 2010
Invesco Perpetual's Head of Investment, Neil Woodford, gives us his thoughts on the UK's investment outlook.
The UK's economic prospects over the coming year, I believe, will be determined largely by the same issues that dominated 2009. The consumer is the key driver of economic growth and the potential for a sustainable rebound in consumer spending activity appears limited. Household debt remains around record highs and to return to more normal levels will in my view require a long period of adjustment. The employment picture is also likely to be an ongoing challenge.
However, although the economic outlook is going to remain tough, and the absence of economic recovery will disappoint, I believe that there are some attractive pockets of opportunity available within the UK equity market.
If we take a look at the specifics of last year, the equity market very quickly embraced the near certainty of economic recovery from March onwards. It reflected this optimism in the re-rating of businesses which were hardest hit in the recession, ignoring quality growth companies with sound balance sheets and earnings visibility. Recent market movements however, have shown early signs of a shift towards favouring undervalued, quality growth companies, and I expect this to continue as the year progresses.
I have built into my assumptions a world which is likely to be tough and consequently, I have focused my portfolio on businesses that I consider can do well in this environment. We are in a rare situation at the current time, where the businesses that I believe are best placed to deal with the economic recovery that I see continuing for the next three years at least, are also the cheapest in the stock market.
