Fiscal cliff to be resolved next year, says Rathbones’ Chillingworth

Julian Chillingworth 200
Julian Chillingworth

Rathbone Unit Trust managers chief investment officer Julian Chillingworth says the US economy is beginning to improve, but a deal on the fiscal cliff is unlikely to be completed in 2012.

Chillingworth says the US housing market is also showing greater signs of improvement.

He says: “It’s not great but it has improved and the market and investors are now worried about the fiscal cliff. There will be a compromise between the Republicans and the Democrats and there will be some resolution in the New Year but not this year.

“The market would love it if it was this year. I think it is fair to say that taxes on dividends will go probably go up but taxes for the middle classes won’t.”

In China, the world’s second largest economy after the US, Chillingworth believes the economy will continue to slow to around 7 per cent, but believes investors can still take advantage of strong demand.

Chillingworth says investors can benefit from consumer demand of products selling into China through secondary investment, such as Diageo.

On Europe, Chillingworth remains less positive, highlighting challenges faced by Spain, Italy and France. Chillingworth says there is no “quick fix” to the problems facing the European economy.

He says: “The French economy is weakening and it’s a big issue as France is a central part of Europe. It does not seem to be improving and they have all sorts of fiscal drag, taxes are going up there, so there are quite a lot of problems.

“France actually contains a lot of international companies, that happen to be based in France so somebody like total is like BP or Shell, a company that is registered in France is really an international company but has little relevance with what happens in France.”

Chillingworth runs the £45.2m Rathbone Blue Chip Income & Growth fund alongside co-manager Alan Dobbie, in which he has been adding to the positions in Europe.

The top ten holdings which represent 44 per cent of the portfolio include Shell, Unilever, Imperial Tobacco, Centrica, Reed Elsevier, United Utilities, Vodafone, BT, BAE systems and Rexam.

“In the top ten we have taken money out of Unilever, United Utilities and Vodafone, and below that top ten we have added to Total, a french company because valuations are looking attractive,” he explains.

Chillingworth says he has also added Italian oil & gas company Eni, which he says has been taking part in exploration in Africa. The fund manager says the oil & energy market will reflect areas of global growth in the long term.

“Total and Eni have some interesting areas they are looking at. Africa is a big area, Mozambique in particular, people are doing a lot of work out there. Big deposits are being found. All the major oil companies are looking at that area,” he adds.

He says the fund is underweight in the pharmaceutical sector and, in the UK, underweight banks.