Holding over 85m shares, Neil Woodford’s funds are among the largest shareholders of defence giant BAE Systems (LSE: BA). This has proved to be a valuable position over the last five years as shares have risen over 46% with a dividend yield in excess of 4% each year.

This solid performance has come despite a slowdown in defence spending from its largest customers, the US and UK, during the drawdown of the wars in Iraq and Afghanistan. However, now that spending in these two markets and Saudi Arabia, its third largest customer, are picking up once again, analysts are expecting a slight uptick in earnings over the next two years.

With an order backlog of £36.8bn, revenue should continue to increase, albeit slowly due to the lumpy nature of defence contracts, over the next few years. Investors shouldn’t expect runaway growth, but shares trade at a relatively sedate 12.4 times forward earnings and offer a safely covered 4.5% yield. BAE certainly won’t be a great growth share, but the company proved during the latest downturn that management can cope with falling defence spending just fine.

Hybrid hopes

One growth share that Woodford is bullish about is hybrid online estate agent Purplebricks (LSE: PURP). It offers property sales for low fixed fees rather than a percentage of the final sale, which is why the fees clock in at roughly a quarter of the national average. This has proved to be a compelling offer for price-conscious sellers as Purplebricks now controls roughly 60% of the online-only market, despite being only two years old.

The company’s competitive advantage comes from the 165 local agents it works with across the country. These agents are self-employed, freeing Purplebricks from high wage bills and expensive high street offices. While this makes Purplebricks slightly more expensive than pure online-only companies, it provides customers with the peace of mind of a local agent to help them through a momentous decision.

Despite racking up a significant loss in its latest reporting period due to high marketing spend, the company is in good financial shape and analysts are expecting it to turn its first profit next year. With only 5% of the estate agency market going to online agents currently, Purplebricks has significant room to grow in the coming years.

Understand your investments

Woodford’s funds also own nearly 20% of Imperial Innovations (LSE: IVO), which seeks to commercialise academic research from Imperial College London and other universities. After a recent share placement, the company has a war chest of £238m to invest beyond the 105 companies it currently has in its portfolio.

Several of these investments, including its 9% ownership of FTSE 250 constituent Circassia Pharmaceuticals have paid off handsomely. However, seed funding in small companies is a very hit-or-miss business model. Furthermore, investing in these tiny businesses based on academic research requires in-depth knowledge of a vast array of healthcare and scientific research. It’s a principle at the Motley Fool to invest in companies you understand, and without the scientific background to understand Imperial’s investments, I won’t be following Neil Woodford’s lead and buying shares.

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Ian Pierce has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.