Three Big Advantages of Large-Cap Tech

NEW YORK (TheStreet) -- Channing Smith, manager of the Capital Advisors Growth Fund(CIAOX Quote), says large technology companies have three distinct advantages over other categories of investment. Consumer-driven companies, meanwhile, will be burdened by weak spending for several years, Smith says.

The fund has returned 16% this year. Capital Advisors Growth Fund has fallen 7.9% over the past year, less than 70% of its large-cap growth peers.

Welcome to TheStreet.com's Fund Manager Five Spot, where America's top mutual fund managers give their best stock picks in five questions.

Are you bullish or bearish?

Smith: We are seeing near-term bullish or favorable trends. We track the distribution of historical monthly returns under different pre-conditions related to moving averages and credit spreads to signal when market conditions are relatively favorable or unfavorable. For example, over the past 83 years, the average monthly return for the S&P 500 Index has been nearly three times higher during periods when the index is trading above its 10-month moving average compared to periods when the index was below its moving average. The frequency of negative monthly returns was also lower during periods when the index was above its moving average.

Similar dynamics hold for credit spreads -- i.e., the difference in yield between sub-investment-grade corporate bonds and 10-year Treasuries -- where the distribution of monthly returns in the stock market is much more favorable when credit spreads are "normal" compared to periods when spreads are very wide. Improving market conditions, like we are currently experiencing, lead us to adjust our portfolio toward more aggressive stocks, while deteriorating market conditions cause us to adjust toward more conservative stocks.