Chillingworth: FTSE 100 will break the 6,100 barrier this year

The FTSE 100 will break the 6,100 barrier in the coming months as momentum in equity markets picks up, said Julian Chillingworth, manager of the £60m Rathbone Blue Chip Income & Growth fund.

The firm's CIO said markets are set to experience 2011 levels of volatility this year, but he expects the FTSE will ultimately end the year only fractionally higher than its 2012 starting level, at 5,600.

"At the moment there are a lot of optimistic investors and the momentum will prompt the FTSE to break the 6,100 barrier. After which, it will pause for breath before ending the year only fractionally higher than it started," said Chillingworth.

The FTSE 100 dipped to below 5,200 in late November last year, but has since steadily risen to around the 5,800 mark.

Chillingworth normally has a relatively low turnover in his fund, but has reshuffled the portfolio to take advantage of the recent rallies.

He has taken money out of the more large-cap defensive names, including Imperial Tobacco and Diageo, and recycled the cash into more economically sensitive names, including Intercontinental Hotels and global advertising agency WPP, due to his more bullish short-term outlook and increasingly attractive valuation levels.

Chillingworth sold out of his entire position in Tesco following its profit warning announced earlier this month. He had held 3.5% in the supermarket giant, but after being concerned over growth prospects for the food retail sector for some time, the profits downgrade proved a catalyst to sell. He redistributed the cash into WPP, which he sees as benefitting from the Olympics this year.

"The worst outcome - a meltdown in the eurozone - has been averted, or at least postponed. The European Central Bank's bond-buying programme has postponed the evil day for now," he said.

"The G7 will not see much economic growth this year. The US will remain at trend growth at around 2.5% to 3% and European seeing around 1% growth, but whereas you would normally see an uptick at this point in the economic cycle, the rebound will be much lower."

Meanwhile, Chillingworth warned US equities no longer look cheap.

"The US is economically much better off than the rest of the G7, and therefore more resilient. However, equities are no longer cheap and are more fairly valued now," he added.

The manager added the Chinese economy will bottom out this year, although he added he is dubious over the authenticity of its economic data. He also highlighted changes to China's government, scheduled for next year, as a key risk.

Chillingworth gains exposure to emerging markets indirectly, through investment in Diageo and British American Tobacco.

The manager is also keeping a close eye on India, but said the risks associated with investment in the region are currently too steep.

"There is still a lot of potential for growth in India but it is a difficult place to do business. They have a problem with inflation and political uncertainty. There was a tax case involving Vodafone recently that has put investors off," he warned.

Within UK quoted companies, Chillingworth expects strong dividend growth from utilities, the oil industry and consumer defensives, while consumer discretionaries will remain under pressure, he said.

The Rathbone Blue Chip Income and Growth fund has returned nearly 49.7% over three years, against a 50.1% average, and has fallen 2.4% over the past year, against a 0.3% average loss, according to Morningstar.