The index reached its record level on 30 December 1999 – closing at 6,950. It is still a long way off that level, at 6,608 at the time of writing. Although equity markets have performed well this year, Mitchell – who runs both the RLAM UK Mid Cap Growth and UK Opportunities funds – says they can continue to strengthen throughout 2013 as money will inevitably flow out of bonds and into stocks.
"This year, we have seen $120bn flow into equities and $125bn flow out of the money market; however, $90bn has gone into bonds, so investors are still buying fixed income," he said.
"Cash has financed equity flows, but you would expect that the money in bonds will pour into the equity market."
"There is still a small equity base and with the impact of inflows it isn’t going to take much for the FTSE to go up and through its historic level."
As sentiment towards the UK economy picks up, the manager says companies will start to invest their huge cash piles, which will boost equity prices further.
"We must not discount M&A," he explained. "Larger companies have a lot of cash on their balance sheets that isn’t earning them anything."
"M&A all depends on confidence – they may well have had confidence in the build-up to the Cypriot bailout, which gave them an excuse not to spend."
"However, they are going to produce very little organic growth elsewhere so partaking in M&A seems like a sensible approach."
"I can see a lot of reasons why markets can keep going higher. What we need is for companies to spend and borrow again, because there has been a lot of deleveraging going on in recent years."
"Debt is now very cheap – why wouldn’t you borrow unless you thought markets were going to fall apart? I find it a lot easier to be optimistic than pessimistic at the moment," he added.
Mitchell has a wealth of experience running UK equity funds.
He ran portfolios at F&C from 1982 until taking over Royal London UK Opportunities and Royal London UK Mid Cap Growth.
According to FE Analytics, Mitchell has returned 118.69 per cent over 10 years while his peer group composite has made 93.38 per cent.
Performance of manager vs peers over 10yrs
Source: FE Analytics
He has run the UK Opportunities fund since July 2007 and his UK Mid Cap Growth fund since August 2009.
They have both been top-quartile performers in the IMA UK All Companies sector since he took them over.
Both are concentrated, with a bias towards economically sensitive stocks, reflecting his bullish outlook.
Although defensive equities have led the rally, he believes they are now overbought.
"As we have seen recently, market participants have been very focused on defensive equities," he said.
"There is the possibility of negative real yields from fixed income and you can’t get anything from cash, so investors have been looking for what is relatively safe."
"Therefore it has been less about what is going on in the world, but more about defensive equities that offer some kind of yield.”
"We are coming to a bit of a watershed, however," he explained.
"Defensive equities have done very well and there are plenty of rationales as to why, but I think they are now fully priced. The likes of SAB Miller, Diageo and Unilever have done well, but from here, markets need new leadership."
"All eyes have been on the US, but as the press have shown this morning, the UK economy is strengthening and my expectation is that Europe will as well over the coming months."
Mitchell has a high weighting to UK housebuilders, which he believes will be very profitable over the long term. He say the Government’s Help to Buy scheme will further boost the UK housing market.
Our data shows that Mitchell counts Persimmon, Barratt Developments and Travis Perkins as top-10 holdings in his Royal London Mid Cap Growth fund.
Although the manager expects cyclical stocks to lead the rally, he says it may take some time before the majority of investors sell out of safe positions in defensive equities.
"I think there will be an underlying shift to more cyclical names; however, defensives have been a comfort blanket for investors and for them to give them up, they will have to have a very good reason to do so."
"I’m not saying it is going to be a repeat of early 2009 where people just bough trash. The element of yield will still play an important part – especially cyclical stocks that can offer a growing dividend."
"However, I think there will be a subtle shift and there are already early signs that money is moving out of the likes of energy and pharmas."
"While there won’t be a snap-change, there are certainly signs that the UK economy is improving."
Although Mitchell has a bullish outlook, he says investors should still have a significant weighting to defensives.
"We still hold GlaxoSmithKline as it has done a very good job," he continued. "It isn’t the case that you should throw everything out, as things can change very rapidly, so you still want some sort of defensive exposure."
GlaxoSmithKline is the sixth-largest holding in his £497m Royal London UK Opportunities fund, making up 3.5 per cent of the portfolio.
Both of Mitchell’s funds require a minimum investment of £1,000. His UK Opportunities fund has an ongoing charges figure (OCF) of 1.41 per cent while his UK Mid Cap fund has an OCF of 1.44 per cent.
Later this week, Mitchell will highlight three stocks that he believes are poised to lead the UK recovery.