Sentiment has been steadily improving following strong economic data from the US, the long-term debt refinancing operation (LTRO) in Europe and some robust results from some of the world’s leading companies.
The FTSE is up nearly 5 per cent year-to-date and many fund managers are beginning to pull back from defensive stocks in favour of more economically sensitive companies.
However, Woodford, who runs more than £20bn of investors’ money across his top-performing Invesco Perpetual Income and High Income portfolios, is keeping his feet firmly in the defensive camp.
"The current wave of optimism sweeping global stock markets assumes that the developed world will now emerge from the period of low economic growth it has faced since the banking crisis of 2008," he said in his latest monthly report to investors.
"Our view is that it will not and that growth will continue to disappoint and, in the near term, will slow in 2012."
The manager’s words echo concerns from the OECD, which said in its latest report that the UK looks to be headed back towards technical recession.
Woodford is unmoved in his appetite for companies in the pharmaceuticals, utilities and tobacco sectors, which all fared well in 2011.
"Year-end results from companies were broadly positive and accompanied by generous dividend increases - GlaxoSmithKline announced a rise of 8 per cent, AstraZeneca one of 10 per cent and British American Tobacco one of 11 per cent," he explained. "We believe that at current share prices many of these strongly placed companies look very attractively priced and we remain confident about the outlook for long-term returns."
Data from FE Analytics shows that the High Income fund, the better performer of the two products, has returned 15 per cent over the last five years compared with less than 1 per cent from the average fund in the UK Equity Income sector. It has however, underperformed over three years in a period where markets have rallied strongly.
Performance of fund vs sector over 5-yrs
Source: FE Analytics
Neil Shillito, director of SG Wealth Management, believes that we are in positive territory compared with six months ago but Woodford’s investment approach is such that it won’t be long before he is proved right.
"There is some really positive news out there. Only this morning I was reading more that the manufacturing industry in the UK was showing signs of improvement," he said. "But Woodford’s signature is that no matter where we are in the cycle, he looks for fundamental drivers of value that will assert themselves in the very long-term."
"Now is a good time to surf the wave of the market and if you catch it right then you are going to do well. Woodford would be the first to admit that he sacrifices that in favour of what he calls primeval drivers of value. He’s had the finger pointed at him so many times before for underperforming but time and time again the process has been proved to work."
FE Alpha Manager John Wood, who heads up the JO Hambro UK Opportunities fund, has a similar defensive approach. He has warned that the process of deleveraging high levels of debt is not over, as some investors have asserted, but in fact has hardly even begun.
Meanwhile, Cazenove’s Robin McDonald, who along with Marcus Brookes is responsible for the group’s range of multi-manager funds, has reduced exposure to Invesco Perpetual Income in favour of Fidelity Special Situations.