Global markets have risen considerably in the last month or so, with the FTSE 100 and S&P 500 up 12.08 and 8.26 per cent respectively since the beginning of June. Both indices are also significantly in the black in the year-to-date, but Woodford believes economic fundamentals have deteriorated over this period rather than improved.
"We remain cautious on the outlook for global economic growth," he said in a recent note to investors.
"As we have gone through 2012, it has become clear that the economic headwinds have increased in strength rather than receded – the eurozone crisis has rolled on and become more intense while the US economy, which grew rapidly throughout the winter, has slowed through the spring and into the summer."
"This is all consistent with our message of the last four years – growth will be hard to come by."
As a result the FE Alpha Manager – who heads up the FE five crown-rated Invesco Perpetual Income and High Income funds – favours defensive, blue-chip companies that pay out dividends.
While fellow FE Alpha Managers Steve Russell and Martin Gray have voiced concerns about a possible bubble forming in equity income stocks, Woodford thinks this area of the market is anything but expensive.
"Our strategy for the fund remains unchanged – we continue to focus the portfolio on what we believe to be fundamentally cheap companies, many of which are termed as blue chip or the "new sovereigns", and where we believe valuations continue to underestimate their ability to grow through a prolonged period of economic stagnation," he explained.
Two of the manager’s favourite companies – Vodafone and Imperial Tobacco, which are both top-10 in his two income portfolios – have suffered setbacks in recent weeks. However, Woodford remains optimistic about their prospects.
He commented: "Vodafone announced that it was encountering difficult market conditions, particularly in southern Europe, but stated that the company continued to make progress in key areas including emerging markets."
"Imperial Tobacco also commented on challenging conditions in some markets, but noted that the company has a strong record of delivering growth in this environment."
Performance of funds vs index and sector over 10-yrs
| Name | 1-yr returns (%) | 3-yr returns (%) | 5-yr returns (%) | 10-yr returns (%) |
| Invesco Perp - High Income | 19.17 | 46.35 | 27.42 | 167.24 |
| Invesco Perp - Income | 18.57 | 44.68 | 26.61 | 164.48 |
| IMA UK Equity Income | 14.16 | 36.73 | 10.95 | 95.15 |
| FTSE All Share | 13.22 | 38.75 | 20.06 | 105.94 |
Source: FE Analytics
Woodford’s defensive stance has worked well for his two multi-billion pound funds in recent years; according to FE data, both Invesco Perpetual Income and High Income have outperformed their sector average and benchmark over one, three and five years, with less volatility. They are also well ahead over 10 years.
Despite being the two biggest funds in the UK Equity Income sector, both remain open to new investment, with a minimum initial outlay of £500.