After a very strong start to the year, the UK index has slid in recent weeks, down from its high of over 6,500 to 6,300 at the time of writing.
Hargreave (pictured) expects the market to slide further, but is "reasonably sanguine" about the current market conditions.
"6,250 looks very likely. That’s only 50 points below where we are now. I think it will hold around those levels," he said. He previously told FE Trustnet he expected the rally to continue throughout the year, but said he expected bumps in the second quarter.
"The market is having consolidation because the macro news-flow hasn’t been great," Hargreave said. "The market needs good macro news to keep going and we haven’t seen that recently."
He points to the lower-than-expected growth figures in China and the crisis in Cyprus as the main reasons for the recent correction. Hargreave says the US is "probably OK" but still lacklustre in light of recent employment figures.
Unlike many of his more cautious rivals, Hargreave is not expecting an all-out correction, however, and advises investors to pay little attention to the recent sell-off.
"It is actually good the economy doesn’t grow too quickly because then the Government will stop injecting money and interest rates could then go up," he added.
This, he says, is more likely to trigger a mass sell-off.
Hargreave is not concerned about the impact the tumble in markets will have on his five crown-rated Marlborough Special Situations or Marlborough UK Micro Cap Growth portfolios, because he has a long-term investment horizon and cannot buy and sell companies at the smaller end of the scale anyway.
"The key is to pick your stocks well beforehand," he explained.
The manager says it has been difficult to find quality companies further down the market cap scale, which is why he is sitting on close to £20m of cash in his £150m Micro Cap Growth fund – around a 13 per cent weighting.
He is fully invested in the £578m Special Sits fund, though.
Both portfolios are standout performers in the IMA UK Smaller Companies sector over three and five years, and the Special Situations fund is also top quartile over 10.
They have lagged their peers over the short-term, delivering third-quartile returns over one year, according to FE Analytics.
However, over the medium-term, both funds have soundly beaten the sector – with the smaller, more nimble Micro Cap fund leading the pair.
Over five years, the Micro Cap fund made 103.5 per cent while the Special Situations portfolio picked up 83.09 per cent. The sector made 54.07 per cent over the period.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
Both funds have been consistently less volatile than their peer group – particularly impressive for the Micro Cap Growth fund, as it concentrates on companies towards the bottom of the small cap universe.
The number-one holding in the Special Sits fund is FTSE 250 wireless and travel software supplier Anite while the Micro Cap Growth fund is backing government software solutions firm Idox.
Hargreave prefers to keep his stock-specific risk low, currently holding no more than 2 per cent in any one company.
Both funds have a high weighting to industrial stocks, although the highest exposure in the Micro Cap fund is to telecommunications, media and technology companies.
When it comes to picking between the two funds, Hargreave points out that the Micro Cap Growth fund is more likely to suffer during market falls, but says it may appeal to the racier investor with a long-term time horizon.
His Special Situations fund is one-third invested in mid cap stocks and two-thirds in small caps – and at the higher end of small caps at that.
As a result, it is more stable than the AIM-focused Micro Cap fund, but does not have the same massive growth potential as its smaller counterpart.
"The Micro Cap invests in companies with a market cap of less than £100m, so by definition is more illiquid," he explained.
"The difference between bid and offer is going to be greater. It is mostly invested in the AIM market, so if there is a severe fall, these stocks tend to suffer. The fund is more vulnerable."
"The Special Sits fund is a safer investment, I would say, but you won’t get the same excitement you get [with the Micro Cap] if the markets go up."
The manager adds that the recent slump in the gold price has had little effect on his portfolio. He has only 2.5 per cent of the Special Situations portfolio allocated to the precious metal.
Hargreave says he is not tempted to pick up stocks on cheap valuations, preferring to stick with well-run, dividend-paying companies with good cash-flows.
FE Trustnet has recently highlighted the strong performance of healthcare, which Hargreave says he has benefited from.
Playing the healthcare sector from the smaller end of the market cap spectrum, Hargreave likes life sciences company Immunodiagnostics Systems because it has a strong management structure and a lot of opportunities.
He is also backing Glasgow-based remote meter-reading service Smart Metering and storage company Restore.
The funds require a minimum investment of £1,000. The Marlborough Special Situations fund has an ongoing charges figure (OCF) of 1.53 per cent, while the Marlborough UK Micro Cap Growth fund has an OCF of 1.54 per cent.