OVERLAND PARK, Kan. (TheStreet) -- John Maxwell, manager of the Ivy International Core Equity Fund (IVIAX) - Get Report, predicts the economy's recovery will be stronger than investors expect, bolstered by government-stimulus efforts and growth in Asia. For now, he's avoiding financial and utility stocks.
His fund, which is run by
Waddell & Reed Financial
in Overland Park, Kan., has earned four stars from
. The portfolio has gained 40% this year, beating 92% of its peers. It has increased 0.1% annually, on average, for the past three years, better than 98% of competing funds.
Fund Manager Five Spot, where America's top mutual fund managers give their best stock picks in five questions.
Are you bullish or bearish?
: I am more bullish than bearish. I believe the economic recovery will be stronger than anticipated, and the market is likely to continue to perform at a much more muted pace. I also think the short-term positives outweigh the negatives. Clear positives include the continued and unprecedented global stimulus, renewed and reinforced growth in Asia driven by China, and massive corporate cost cuts that allow for buoyant margins.
We expect to continue to shift our focus to steady growth players that fit our criteria for sustainable competitive advantage. These companies will likely perform better whether the recovery begins to fade or merely matures.
What is your top stock pick?
: My top stock pick in a bullish scenario is
Mitsui & Co.
, a mineral resources and energy company in Japan. At the bottom line, 80% of the value is iron ore or liquid natural gas (LNG) and the stock has significantly lagged its metals peers this year, primarily because it is in Japan, which has been a source of funds.
What is your best under-the-radar stock pick?
: This is a choice that is less dependent on the economic scenario. I like
in Australia. It trades at a discount to global brewing consolidators, but it's a clear target and its beer operations are robust. I see some potential there that may not be immediately obvious.
What's your favorite sector?
: Energy is my favorite sector at this point, with a focus on services and exploration and production, rather than large integrated companies. Bottom-line supply in an economic recovery that is largely being led by the emerging markets will have trouble keeping up with demand. This bodes well for the sector overall, but particularly for the exploration and production segments.
Which sectors or stocks are you avoiding?
: We're generally staying away from utilities and financials. For the most part, utilities have to borrow money to pay their dividends, while financials have rallied a great deal considering the depth of their issues over the last year and a half. In our mind, developed market financials are the one sector in which multiple and normalized returns should be much lower in this economic cycle than in the last one.
-- Reported by Danielle Kost in Boston