"Last week was indeed a pretty volatile week, and I think that was because investors have been beginning to focus on the fact that the US Federal Reserve is going to do what’s called 'tapering' – i.e. slow down the amount of asset purchases they’ve been making," he explained. Chillingworth (pictured) says there is little doubt the Fed will reduce the $85bn it is currently spending each month in asset purchases.
"That’s probably going to slow down as we go into the autumn and the uncertainty is: will they slow it to say $40bn per month or will it stop altogether? My own take on that is it will slow to about $40bn and then they will gradually ease back."
"But the summer is going to be volatile because the economic news isn’t going to be good," he added.
The manager says economic data from the US last week was a good example of the mixed messages the market will likely receive in the coming months.
"We had a good non-farm payroll number, but some poor manufacturing data. I think it’s going to be more of the same through the summer," he continued.
"Unfortunately, I think investors are going to have to have quite a bumpy ride across the summer months."
Chillingworth also warns of further volatility in currencies. In recent months sterling has strengthened against the dollar in spite of the expected slowdown in quantitative easing in the US.
Although he expects sterling and the euro to weaken against the dollar in the long-term, on a short-term basis he thinks currencies will continue to react to political and monetary measures.
Chillingworth heads up the Rathbone Blue Chip Income & Growth and Rathbone Recovery funds.
The five crown-rated Blue Chip Income & Growth fund has beaten both the IMA UK Equity Income sector and the FTSE All Share over one, three, five and 10 years.
Over the last decade, the fund is up 135.2 per cent, while the sector and index have returned 113.59 per cent and 124.45 per cent respectively.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
While Chillingworth expects this summer to be difficult for investors, on a longer-term view he is positive, and has been upping his exposure to more economically sensitive areas as a result.
Chillingworth says he has been pulling back from highly rated consumer durable names such as Diageo and Unilever of late – traditional staples of many equity income portfolios in the UK.
Instead, he is making a move back towards cyclicals because he expects them to come back into favour, particularly if China reveals better data and Japan recovers from the dip it took last month.
"I think if people combined this with a recovering US economy throughout the year, then there will be more of a burst toward cyclicals," he added.
"We quite like the mining sector because we think P/E [price/earning] ratios of about 9 and yields of 3 to 4 per cent are reflecting some of the uncertainties around short-term base metal prices and slower economies."
"This could be a good opportunity to participate in a growing economic resurgence as we go through the year."
However, he says Europe will continue to drag on global growth and warns that investors should be worried if they have significant exposure to companies that are dependent on revenue from the continent.
"For those UK companies with European exposure, I think life’s going to remain quite difficult," he said.
In both portfolios, Chillingworth says he is looking for companies that can gain from a cyclical upturn and that do not rely on European sales.
Among the top-10 holdings in Chillingworth’s concentrated Rathbone Blue Chip Income & Growth fund are major UK names Centrica, Reed Elsevier and defence firm BAE Systems.
The £49.6m fund is yielding 3.72 per cent.
The manager’s Rathbone Recovery fund has also been a standout performer in the IMA UK All Companies sector since its launch in July 2009.
It is up 85.66 per cent, compared with 76.09 per cent and 73.81 per cent from the sector and FTSE All Share respectively.
Performance of fund vs sector and index since launch
Source: FE Analytics
Both funds require a minimum investment of £1,000. The Blue Chip fund has ongoing charges of 1.61 per cent, while the Recovery portfolio charges 1.65 per cent.
