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The fund, which has earned four stars from Morningstar(MORN Quote), has returned 27% in the past year, beating half of its peers. It has declined 0.3% annually, on average, during the past three years, outperforming 96% of competing funds. Frascarelli adjusts the portfolio to market conditions by tilting its investing style toward growth or value.

Welcome to the TheStreet’s “Fund Manager Five Spot,” where America’s top mutual fund managers share their market insights.

Are you bullish or bearish on the stock market?

Frascarelli: We are bullish because we believe that economic data in 2010 should continue to show signs of a strengthening recovery. The effects of the recession were particularly severe as companies implemented drastic cost cuts involving reductions in capital expenditures, payrolls, inventories and production.

We’ve recently seen final demand for goods and services stabilizing, yet inventories remain below normal. Once inventories start to climb, production will resume, worker layoffs will abate, workweeks will lengthen, and labor income will eventually increase. An improving labor market will provide consumers with more money, and an improvement in consumer spending should propel a virtuous cycle of renewed economic growth.

Once final demand returns, it could provide a significant boost to corporate profits, which have held up better than expected, primarily due to cost cutting. Early in the year, earnings estimates on the S&P 500 were around $45 per share and estimates have steadily increased up to $65 per share. As final demand returns, earnings on the index could approach $80 per share in 2010.

 

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