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.

What is your top stock pick?

Smith: We continue to like high-quality blue-chip growth stocks that offer steady growth, exhibit sound financial strength and provide nice dividend yields. We classify these stocks as the "consistent producers" or conservative stocks in the fund. Procter & Gamble is riding a number of favorable trends, including better working capital management, improving profitability metrics and improving brokerage analyst sentiment.

What is your top "sleeper" stock pick?

Smith: CarMax is the largest retailer of used cars in the U.S., with roughly 2% of a fragmented $300 billion market. We classify "sleeper" as "emerging franchise" or higher-risk, higher-reward stocks, which is a company executing a novel business model of one form or another. Volatility can be higher for these kinds of stocks due to the uncertainty associated with the business model. We have witnessed a number of positive changes in CarMax's business over the last couple of months, including rising revenue growth and gross margins, improved customer traffic and same-store sales, higher used-car prices and improving consensus earnings estimates.

What is your favorite sector?

Smith: We continue to like the technology sector's long-term outlook, especially in large-capitalization technology, for a number of reasons. First, investments in information technology provide corporations with much-needed productivity gains. Second, many of the large-capitalization technology companies have considerable exposure to the faster-growing emerging-market economies. Lastly, the balance sheets of many of the larger technology companies, like Cisco, Intel and Microsoft, are cash-rich and generating tremendous free cash flow, which creates a number of shareholder-friendly opportunities, like stock buybacks, dividend opportunities or acquisitions of emerging technologies.

What sector or stock would you avoid?

Smith: We fear the consumer-discretionary sector's recent run-up may be unsustainable when one considers the headwinds facing the consumer in the coming years. The U.S. consumers' propensity to spend may be challenged by a rising under-employment rate -- currently close to 17% of the workforce is either unemployed or not working full time -- stagnating income growth, contracting consumer credit availability and decimated net worth. The process of de-levering the U.S. household balance sheet may be just beginning, which would imply a higher savings rate for several years to come.