Speaking in a video accompanying the firm’s January fund update, Woodford said much of the reason behind the violent moves seen in January and the beginning of February, is that markets are beginning to focus on the impact of the weak economy on corporate profitability and are disappointed with what they see.
“There is a realisation that the weak economic backdrop is going to have an impact on earnings. And, by implication the valuations that we have talked about as being quite high, were going to come under pressure,” Woodford said.
Markets are also beginning to worry about the risk of policy error in the US, where Woodford said, the data hasn’t been good, yet the Fed was talking about raising rates a number of times throughout the year.
“The market was quite worried about the fact that the world economy seemed to be showing that the backdrop was weak yet the Fed’s direction of travel was predicated on a much stronger outlook. Certainly higher inflation, strong growth in the US.”
While he is maintains his cautious stance on the global economy, Woodford is much more sanguine about the prospects for his own funds, which he says have been built for the current macro environment.
“I haven’t enjoyed January and the beginning of February, but I am confident we have the right strategy and portfolio for the environment,” he added.
Over the course of January, the fund’s net asset value fell, largely on the back of significant falls from two US biotech holdings, Prothena and Alkermes.
Prothena’s move came despite a lack of any significant news flow, which WIM said, “was symptomatic of the extremely negative sentiment towards US biotech in recent weeks”
Alkermes, however was dragged down not only by the poor sentiment toward the sector more generally, but also by a negative update on its pipeline with two Phase III trials of a potential treatment for major depressive disorder failing to meet their primary endpoints, WIM said.
But, it added: “This does not represent an outright failure of the drug, however. A further trial is still underway, and the company retains some hope that it will be able to file the drug for approval from the FDA eventually. Nevertheless, the development is a clear disappointment. In both instances and elsewhere in the broader health care industry, we think that share price moves look greatly overdone.”
On the back of this belief, the fund added to its holdings in both Prothena and Alkermes as well as two othe biotech holdings, AbbVie and Theavance Biopharma. These were funded in large part from the sale of the firm’s remaining holding in Royal Mail.
During the month the firm also added to its positions in Next, G4S, Legal & General and Provident Financial on share price weakness
