January 13, 2017 / 10:16 AM / in 6 months

Star fund manager Woodford questions runaway valuations after "disappointing" year

2 Min Read

LONDON (Reuters) - UK fund manager Neil Woodford has blamed runaway share prices in oil and resources stocks for the underperformance of his flagship fund last year.

Woodford, the founder of Woodford Investment Management who manages around 15 billion pounds ($18.40 billion) of assets, had low exposure to commodity-related stocks which were the biggest beneficiaries of the so-called reflation trade that has dominated markets since the last quarter of 2016.

The Woodford Equity Income fund returned 3.4 percent in 2016 against the 16.8 percent rise for the FTSE All Share Index.

The manager's top holdings, including healthcare companies GlaxoSmithKline and AstraZeneca, have lagged against sharp rallies in the oil and gas and resources sectors.

UK-listed mining companies doubled in value last year while oil and gas companies rose 50 percent.

"It has been a disappointing year from a performance point of view," Woodford said in an update to investors.

"As share prices have detached from fundamentals it has made me more confident, but has tested my resolve and our clients’ resolve."

Performance was hit by problems at Next and Capita, both top holdings for the fund.

"There have been some disappointments reflected in big share price falls and some profit warnings," Woodford added.

Gains in the portfolio came from a position in litigation funding firm Burford Capital, whose share price more-than trebled in 2016, as well as strong performance from British American Tobacco.

Woodford, one the UK's best-performing fund managers during a 30-year career predominantly spent at Invesco Perpetual, said recent underperformance mad it more likely his fund would recover ground in 2017.

"Share prices will always catch up with reality at some stage - they always do," he said.

"In the end the only thing that matters is fundamentals."

($1 = 0.8153 pounds)

Reporting by Alasdair Pal, Editing by Vikram Subhedar

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