NEW YORK (TheStreet) -- As the economy rebounds and stocks rise, Frank Barbera is remaining cautious, buying preferred stock, high-yield bonds and commodities for his Sierra Core Retirement Fund (SIRAX) - Get Sierra Tactical All Asset A Report.

The $537 million mutual fund has returned 8% over the past year, putting it in Morningstar's 97th percentile for moderately allocated funds. Over the past three years, however, the fund has returned an average of 12% annually, better than 99% of its rivals.

Welcome to TheStreet.com's Fund Manager Five Spot, where America's top mutual fund managers give their best stock picks and views on the market in a five-question format.

The Sierra Core Retirement fund has remained defensive despite market's bull run. Do you have any plans to get more aggressive?

Barbera:

The contour of the overall economy still looks fragile. We have seen a little improvement in the headline employment data, but a lot of the data behind that looks quite weak. We think the rise in inflation pressures could at some point have the Fed tightening up monetary policy and that could give the stock market a little bit of a hard time.

In your fund, you own the Nuveen Preferred Securities Fund (NPSAX) - Get Nuveen Preferred Securities Fund A Report. Why do you like this one

Barbera:

It has a strong dividend yield and it also has good upside potential in a rising market. So it's a very conservative way to play the stock market while at the same time collecting good dividends.

You also own the Columbia High-Yield Fund (INEAX) - Get Columbia High Yield Bond Fund A Report and Pioneer High-Yield Fund (TAHYX) - Get Pioneer High Yield A Report. These have done very well over the past year. Are you going to stick with them?

Barbera:

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They have outperformed the equity market on the upside since inception in March 2009. High-yield bonds tend to rise in sympathy with the stock market, and we are most definitely sticking with them. We do have a trailing stop-loss under every position so until that trailing stop-loss is hit, we will be long all those funds.

You also own the Rydex Commodities Strategy Fund (RYMEX) - Get Rydex Commodities Strategy A Report. We have also seen a run-up in the price of commodities -- how much higher can they go?

Barbera:

They could conceivably still have plenty of room on the upside. Yes, it does look like they have come up a long way, and we are guarded. But we also see signs of stagflation starting to show up. There is a lot of wage pressure building up in China, along with food inflation. A lot of that should come into the headline numbers in the months ahead. That should have a firm tone for commodities going forward, so we like the space.

We have seen a lot of volatility in the municipal bond arena. Are you doing any investing there?

Barbera:

We just started allocating money into the muni space. That's an area that has been very heavily depressed over the past few months. We are finding good value there. We feel we can buy some of the leading funds at attractive yields around 8% tax-free and with a trailing stop underneath that we can control the risk.

-- Reported by Gregg Greenberg in New York.

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