Correction fears prompt Chillingwoth to build cash.(Correction notice)

Byline: Bradley Gerrard

Rathbone Unit Trust Management's Julian Chillingworth is allowing his cash position to grow rather than buying new stocks, for fear markets could correct in the short term.

The chief investment officer and manager of the GBP60.7m Blue Chip Income and Growth fund said he had roughly 6.5 per cent in cash after recent strong inflows.

However, he is waiting for things to cool off before deploying the new capital.

"A sensible correction across markets would not be untoward, " Mr Chillingworth said.

"If it came back approximately 5 per cent that would at least be a pause for breath.

"We are mainly getting better economic news but there are still stresses and strains, such as the European debt market, and there is the possibility of rate rises here and on the continent."

The manager said equities rallied towards the end of last year, partly on the back of commodity rises but also because of loose monetary policy. He said markets had now returned to levels last seen in 2008.

"The underlying reason is people have been buying risk assets is they saw quite substantial monetary easing in the US and that gave the green light for people to get involved in risk assets.

"Monetary policy will remain loose but, as the saying goes, trees don't grow to the sky."

Positions Mr Chillingworth has added to include William Hill, which he said people had become over sceptical of because of their views on an expected consumer downturn.

He said: "The retail part is doing well and their internet offering is better than Ladbrokes. There is also a decent yield of 5 per cent on a single figure price/earnings ratio."

Elsewhere, the manager has added to Imperial Tobacco and publishing company Reed.

"The former has been ignored for the last few months as people found tobacco a bit boring but the company has come out with excellent numbers and a large dividend increase.

"It is going to go to a 50 per cent payout from roughly 40 per cent now.

"The market missed this as it was too preoccupied with the levels of debt and cash flow generation."

But Mr Chillingworth said the latter should not be a problem after its purchase a year ago of Altadis, Spain's largest cigarette manufacturer.

He added: "These are three very different companies but all have been slightly neglected by the market over the last few months and in the last few weeks all have started to perform."