There's a 5-star fund manager out there who says it's time to think small.
Michael Petroff's Heartland Value Plus Fund is up 7 percent this year, even with the small-cap Russell 2000 Average down 5 percent. So what's Petroff's investment secret?
"We're value investors," he explained to CNBC.
"We focus on margins of safety, companies with little or no debt. We avoid a lot of the dislocations in the debt market. We also focus on dividend-paying companies, [which are] less volatile than the non-dividend payers."
Petroff's fund profited by being overweight in energy and underweight in financials during the second half of last year, and he's not changing his strategy.
"We think it's too early on the financial side," he said.
"We think there's additional writedowns on good will; we think there's additional capital raises, which are dilutive to shareholders."
Petroff likes a small-cap firm called Steris.
"They sterilize the medical equipment and the devices in a hospital," he said. "Clearly, there's a trend, whether its staph infections or otherwise, where people enter a hospital, and leave sicker than they came in -- and they're capitalizing on that trend."
He's also strong on Asset Acceptance Capital.
"This is a reverse play on the financials," he said. "They purchase and collect defaulted account receivables, so they're benefiting from the crisis that we're seeing. ... As people clean up their balance sheets, they're selling their portfolios at considerable discounts, so they're going to benefit from that."
His third pick is Werner Enterprises.
Petroff's fund owns shares of Steris, Asset Acceptance Capital, and Werner Enterprises.