It is more important than ever to focus on the broader issues driving markets, according to veteran investor Neil Woodford, who said he will continue to go against the consensus in 2018. 
FE Alpha Manager Woodford (pictured) said the current investment climate has proved a challenging one for value-focused investors.
Indeed, last year the value trade fell from favour having outperformed the growth style in 2016.
As the below chart shows, the MSCI United Kingdom Growth index delivered a total return of 12.79 per cent in 2017, compared with a gain of 10.72 per cent for its counterpart, MSCI United Kingdom Value.
Performance of indices in 2017
Source: FE Analytics
Despite a more challenging backdrop, however, Woodford said he remains focused on valuation as the most important determinant of returns.
“As a value-orientated investor there are tough times, no more so than when markets are momentum driven as they have been for some time now – but valuation is the only catalyst for investment returns that I have ever trusted,” he explained.
“That’s why my investment strategy will continue to be based on a rational, disciplined analysis of the fundamentals of individual businesses, broader industries and the economies in which they operate.”
Woodford added: “This allows me to make investment decisions based upon the differences between the market’s perception of value and my own.
“The shape of the broader macroeconomy is also a key influence on how I position the funds and, while I don’t feel the need to form annual forecasts for inflation, GDP growth and unemployment, I try to form a clear understanding of their likely direction of travel.
“Many of you will be aware that my views on market valuations and the broader macroeconomic conditions have gone against the consensus for a while now – and they remain so.”
The fund manager’s performance has come under increased scrutiny more recently as the £8bn flagship LF Woodford Equity Income fund he launched after leaving Invesco Perpetual has struggled to deliver strong performance.
As the below chart shows, last year the fund recorded a gain of just 0.79 per cent in 2017 compared with a 13.1 per cent gain for the FTSE All Share index. It was the worst performer in the IA UK Equity Income sector, where the average fund returned 11.32 per cent.
Performance of fund vs sector & benchmark in 2017
Source: FE Analytics
It also followed a bottom quartile performance in 2016 when the fund returned just 3.19 per cent compared to the sector average of 8.84 per cent.
The fund did get off to a good start returning 16.19 per cent in 2015, however, two mediocre years means the fund has returned just 17.18 per cent over three years against a 28.88 per cent gain for the sector average.
Poor performance in 2017 was attributed to more stock-specific issues earlier in the year, with the fund’s holdings in AstraZeneca and Provident Financial being among those suffering significant setbacks.
Despite a more difficult year for the fund, Woodford said he remains bullish about the prospects for UK companies this year, highlighting several opportunities for value-focused investors.
He explained: “As we move into 2018, I expect global liquidity to tighten and China’s economy to slow, with both acting as a brake on economic growth and financial asset prices.
“I expect the UK to defy expectations of a slowdown and for the valuation stretch between the popular and unpopular stocks will begin to reverse.
“While there are risks, there are equally opportunities – that is always the case when markets get carried away.”
He added: “I believe the best opportunities lie in UK domestically-focused stocks, a healthcare sector that has endured a prolonged bear market and companies – of all sizes – that have disruptive technologies at their core.”