This is according to SVM Asset Management’s Neil Veitch, who says that while it is certainly possible that the market will retract by 3 to 4 per cent, a correction of 10 per cent or more is unlikely.
Given the positive outlook for markets this year, he says investors would be better off weathering the volatility. "If it’s just 3 to 4 per cent, well who cares? That’s just random market noise," he said.
Veitch, who manages the SVM UK Opportunities fund, disagrees that the January rally was driven by irrational buying based on sentiment alone, saying that the improving economy is playing its part.
"The rally has been warranted by an improvement in fundamentals. The market will continue to get higher this year because the world is improving. The financial system is healing itself."
"This is most apparent in the US but it is expanding into Europe."
The manager says the FTSE is likely to pick up another 10 per cent this year and could rise above 6,900 points. He told FE Trustnet in November that the index would eclipse 6,200 in 2013 – a level it has already surpassed.
Veitch points out that while Europe is the most obvious flash point, leaders in the region have shown such a strong commitment to tackling its problems that it is unlikely to thwart a global recovery.
He adds that corporate earnings from UK companies have been relatively solid and that employment figures are improving in much of the world.
Veitch also says increased M&A activity shows companies are willing to put their money where their mouth is.
The £82.8m SVM UK Opps fund has returned 236.07 per cent over the last decade compared with IMA UK All Companies' 153.7 per cent and the FTSE All Share's 170.07 per cent.
This makes it top quartile in its sector over 10 years, as well as over one and five.
However, it has been far more volatile than its sector and index, losing significantly more during the 2008 crash. According to FE data, it was down 55.19 per cent in the 12-month period.
The fund is roughly 10 percentage points more volatile than both the sector and index over 10 years, with an annualised score of 23.56 per cent, according to FE Analytics.
Much of this is due to the manager's bias towards cyclicals – particularly oil & gas, to which the fund has a weighting of 17.6 per cent.
The fund typically proves its worth during rising markets. In 2009, it picked up 101.35 per cent, while the sector and index only gained about 30 per cent each.
The rapid return to form for the fund reflects Veitch’s view that the majority of investors buy at the wrong time. He says he is happy to sit in out-of-favour sectors as long as he sees long-term value in them.
"Nobody wants to buy stocks when they should do," he explained. "They want to buy at the top when the market is about to fall instead of buying at the bottom. The same is true with companies."
Beyond oil & gas, the fund is tipped towards services, with 22.8 per cent of AUM allocated to the sector. Industrials make up 19.7 per cent, its second-highest weighting.
Among the fund’s top holdings are blue chips GlaxoSmithKline and HSBC, as well as UK sport services company Babcock International and online betting and gambling firm William Hill.
The fund requires a minimum investment of £1,000 and has a total expense ratio of 1.84 per cent. Veitch is also the deputy manager on the SVM Global Opportunities and manager of the SVM World Equity funds, which sit in the IMA Global sector.
While the SVM Global Opportunities fund has been a serial underperformer over one, three and five years, SVM World Equity has a much better record.
Since its launch in December 2010, the three crown-rated fund has made 23.45 per cent, compared with 15.04 per cent from the IMA Global sector and 18.04 per cent from its MSCI AC World benchmark.
Performance of fund vs sector and index since Dec 2010
Source: FE Analytics
The fund requires a minimum investment of £1,000 and has a TER of 1.98 per cent.