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Woodford: European weakness likely to get worse

Neil Woodford
Neil Woodford

Invesco Perpetual fund manager Neil Woodford has warned of a further deterioration for continental Europe with a lack of clarity over how the current economic crisis will be resolved.

Addressing Edinburgh investment trust investors today, Woodford (pictured) said the deterioration will be caused by monetary and fiscal headwinds.

He said: “My view is that the underlying weakness of continental Europe is likely to get worse. The reason it is getting worse is that we have a combination of monetary and fiscal headwinds, which are getting harder, not weaker.

“It is hard to see how the eurozone crisis will be resolved. You have to attach some probability to a eurozone breakup. You also have to attach some probability to a move to more integration. But either way it is likely to be coincident with poor economic performance.”

Woodford told investors that the current market environment is “quite risky” with weak economic data and growth downgrades likely to be reflected in company profits and earnings.

He said: “There is earnings risk in the market and I have talked about this in the past. However, I still believe that there is a lot of valuation opportunity as well.

“I have said consistently that despite these difficult economic times, there is a population of stocks that can grow consistently through this difficult period. Those companies that feature prominently in the portfolio are the businesses that can deliver revenue, cash flow, earnings and dividend growth consistently going forward.

“So stand by for more profit warnings. They are coming thick and fast. There is risk at the moment. The answer for the overall market is that I struggle to see how the market can make much headway, but within the market there is a lot of opportunity.”

Woodford said his investment strategy will remain unchanged.

The Edinburgh investment trust’s latest quarterly results show the portfolio outperformed over the three months to June 30. The trust’s share price was up 0.6 per cent and its net asset value rose 2.1 per cent, compared with the 2.6 per cent fall in the FTSE All-Share index benchmark, according to its interim management statement.

The fund also beats the benchmark over one, three and five years to June 30 in terms of both share price and net asset value.

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