Neil Woodford: policy makers aren't getting close in Europe

Policy makers are not getting close to solving the problems in the eurozone and their actions so far could lead to a recession that lingers into 2013, Neil Woodford has warned.

Woodford, head of investments at Invesco Perpetual, has been positioned for a challenging environment for several years, and told investors he continues to remain cautious on the eurozone, where politicians are struggling to find a solution to the sovereign debt crisis.

'Nothing that we have seen from policy makers thus far, we believe, comes close to solving the issues that exist within the eurozone,' Woodford said in his monthly update. 'In our opinion, the current policies are likely to result in a recession for much of the region throughout most of 2012 and possibly 2013.'

Greece, where a pro-austerity and pro-bailout coalition has now been elected, is in its fifth year of recession. 

Meanwhile, the UK fell back into recession during the first quarter of the year, when the growth rate took a sharp 0.2% tumble. Additionally numbers from Germany, once the strong arm of the single currency zone, have today shown its business climate continued on the downward trend it began last November, while its debt/GDP ratio stands at a staggering 80%.

Woodford has maintained the positioning of his High Income fund, a pick of Citywire Selection, preferring to back cheap defensive blue chips, particularly those in the pharmaceutical and tobacco sector, despite recent concent about the latter.

He said: 'The current bout of concern over the eurozone has not necessitated any changes to the strategy we have in place.  We continued to focus our portfolios on what we believe to be fundamentally cheap companies, many of which are defined as "blue chips" and where we believe valuations continue to underestimate their ability to grow through a prolonged period of economic stagnation.'

Over the course of the year this strategy has paid off for Woodford, even though he admits he was caught out by the profits warning from Tesco (TSCO.L), which he previously considered defensive. Since May last year the fund has returned 2.2%, compared to a fall of 8% in the FTSE All World Total Return Index.