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Neil Woodford warns of further corporate casualties

Veteran fund manager continues to fear the impact of a darkening economic picture on corporate profits, but says there are stocks that can defy the gloom and grow consistently. 

 
Neil Woodford warns of further corporate casualties

The country's best known and most powerful fund manager, Neil Woodford, has reiterated his concerns that growth-sensitive companies may be forced to issue profit warnings.

The manager of the £9 billion Invesco Perpetual Income fund warned of downgrades to company forecasts even though he countered this with a belief there is a core of stocks that can ‘grow consistently’.

In his latest update, the Citywire A-rated fund manager counted BT and Reckitt Benckiser among companies that ‘pleased’ on the corporate news front during December.

BT Group (BT.L), of which he holds 5.47% in his Income fund, announced a 15% increase in its interim dividend.

Reckitt Benckiser (RB.L), which constitutes 4.88% of his fund, also ‘pleased investors’ with news of the $1.4 billion purchase of Schiff Nutrition.

But Woodford (pictured) said: ‘There was disappointing news from Chemring (CHG.L) as Carlyle Group called off its discussions about a possible takeover and Chemring announced a fall in its year end order book.’

December last year was a month of two halves for the UK stock market, Woodford said, falling down in the first part on the back of concerns over the US economy, the Greek debt crisis and reduction in eurozone growth.

Confidence was restored in the second part of the year as fiscal cliff fears eased and Europe's leaders agreed with the International Monetary Fund over a Greek bailout.

However, despite the uptick in confidence and UK equity market’s strong performance last year, Woodford has continued to warn a lot of companies may suffer.

‘We expect further downgrades to forecasts of those companies more sensitive to the economic cycle, as the impact of the on-going crisis in Europe, a slowdown in US growth and persistent reduction in borrowing across the western world continue to limit the pace of global economic growth,’ he said.

‘However, we maintain our view that there is a population of stocks that can grow consistently through this difficult period – we believe companies that have been delivering growth since the 2008 banking crisis will be able to continue to do so, and we do not believe that they are currently valued for that ability.’

Over three years to the end of November, Woodford's Income fund returned 37.35% versus the FTSE All Share’s 28.28%. Over 10 years the fund has grown investors' money by nearly 202%, placing it third in the UK Equity Income fund sector. This puts it just behind his £12 billion Invesco Perpetual High Income fund which has delivered a near 210% return over the decade, ranking it second out of 60 funds in the same sector. This fund is a pick of our Citywire Selection team.

Further Reading:

The equity income funds we're picking amid the turmoil
The FTSE giants that need to keep Neil Woodford happy.

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