Neil Woodford has warned investors to expect further downgrades to profits forecasts for those companies more sensitive to the economic cycle.
Neil Woodford (manager of the Invesco Perpetual Income and High Income funds) paints a pessimistic story for the rest of 2013. He has grave concerns pertaining to the existing problems (eg the ongoing crisis in Europe, a possible slowdown in the US and reductions in borrowings across the western world) will limit the pace of global economic growth. Conversley, in his monthly update, he states he believes there is a “population of stocks that can grow consistently through this difficult period”.
Bill Mott (manager of the Psigma Income fund), has always raised his concerns over the effect of central bank policies, he has warned that these have raised the chances of increasing inflation by continually introducing unprecedented policies into the market. He believes that these have increased the expectation of a growth in inflation.
“To some extent, inflation is already with us. The Bank of England has exceeded the middle of its target inflation range for 38 months in a row. What is remarkable is that despite this persistent inflation, the UK gilt market is trading at such low yields. Real interest rates on bonds have been negative for some time. Are low gilt yields telling us that the bond markets are relaxed about the inflation numbers? Or is it rather that the same target-busting Bank of England has been the most enormous buyer of gilts and has successfully subverted all price signals?”
Bill Mott has avoided investing in bank shares through the portfolio he manages, Psigma Income Fund. This has caused poor returns (short-term) against his peers. Time will tell if his decision is correct, as there has been a recent period of price rallying in this sector but is this a “true” rally or rather a “relief” rally. The latter will see the prices collapse, or could the pricing be sustainable?
Personally, I have concerns over the banking sector as there are several unknowns which carry a huge risk and could derail the recent optimism, One major issue with this sector is the lack of clarity of information and the continual fiascos constantly being unearthed. I see the comments about RBS and Libor, where the fines could be significantly worse than those suffered by Barclays (but expected not to be as large as those suffered by UBS). This is just an example and who knows what next?
welshmoneywiz 