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Invesco Perpetual: Investment defence will pay attractive returns despite no recovery

24 July 2009 / by Rebecca Sargent

Investing in defensive options will provide attractive returns over the next three to four months, despite no sign of recovery, an expert at Invesco Perpetual has claimed.

Neil Woodford, head of investment at Invesco Perpetual and fund manager of the Invesco Perpetual High Income Fund and the Invesco Perpetual Income Fund, remains pessimistic in his outlook for the UK economy, claiming:

"I see little reason for confidence and I do not anticipate meaningful recovery in the next three to four years."

However, there is a way for investors to ride out the storm, he adds, stating: "I believe that certain areas of the equity market are fundamentally undervalued."

According to Mr Woodford: "Encouragingly, the companies that are best equipped to deal with a protracted period of little or no growth in the economy are currently the cheapest in the market and these are the areas in which I am heavily invested.

"This is why I am positive about the outlook for my portfolios despite the poor economic background."

The industries that these defensive positions appear in are currently pharmaceuticals, utilities, tobacco and telecoms, although Mr Woodford soon expects this to change.

"History suggests that this discount will not persist for long. When looking at companies in sectors like pharmaceuticals and tobacco, many are trading on earnings multiples that do not reflect the fundamental qualities of their businesses," he said, adding:

"I believe that their ability to grow profits, cash flows and dividends has been overlooked but as the scale of the challenges facing the economy become clearer I think this will change."

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