Woodford shuns 'very challenged' BP and Shell

Invesco Perpetual's head of investment Neil Woodford warns BP and Shell are not attractive even with higher oil prices.

Woodford says BP and Shell remain "very challenged", and he prefers to invest in BG Group, which is worth around 6% in both the Income and High Income funds.

He says: "BP and Shell are very challenged. The costs of finding and exploiting resources on a scale that can offset declines in other parts of their business is rising.

"They have become very cash consumptive businesses and in my view there are better opportunities."

Historically Woodford's funds have been biased towards the tobacco, pharmaceuticals, utilities and aerospace sectors, reflecting his cautious outlook.

He continues to favour pharmas and says he is poised to increase his weighting to the sector.

He says: "Pharmas are unprecedentedly attractive. There have only been a few times in my career where I have seen such an opportunity."

He says valuations in the sector remain depressed as the focus has been on cyclical stocks, and he says investors buying into the sector now are getting the benefits of global expansion.

He says: "In my mind there is a disproportionate focus on on the patent cliff, and R&D issues.

"There is a huge amount of demand for these drugs in India, China and Brazil, so there is an opportunity in the emerging world, and an opportunity in the developed world from the ageing population demographics."

Pharams are one of the biggest bets across both Woodford's main income funds, but he is poised to up his weight to the sector.

He says: "I am happy with pharma and with cashflows I am looking to add more."

The fund is currently holding both AstraZeneca and GlaxoSmithKline, as well as Roche and Novartis."

Woodford continues to shun banks because of the challenges they are facing.

He says: "The banks face a very challenging future and we continue to be nervous about the sector and avoid it."