Stocks Beat Gold, Bonds: Brown Bros. Strategist

Bonds are overvalued and gold is no protection from inflation, says Scott Clemons, chief investment strategist at Brown Brothers Harriman and contributor to the BBH Core Select Fund .

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Better than both of those options are consumer-staples stocks such as Coca Cola and Johnson & Johnson , says Clemons.

The $368 million mutual fund, which garners four of five stars from Morningstar, has risen 12 percent during the past year, beating 62 percent of its rivals.

Over the past five years, the BBH Core Select Fund has returned 6.4 percent annually, better than 95 percent of its large-cap blend peers.

Welcome to TheStreet'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.

TheStreet: What is your outlook for stocks in 2011?

Clemons: We are constructive on stocks. Given a lot of the activities of the Fed and the pent-up inflation demand in commodities, we feel we need portfolio protection. We look to the equity market and certain kinds of equities in particular as being a very effective hedge against inflation.

TS: Why are consumer-staples stocks like Coca Cola and Johnson & Johnson good inflation fighters?

Clemons: They sell essential products and services. They sell things where there is pricing power. Should they feel imported price inflation in their input costs, they can pass it on to their end consumer.

TS: Another company that you like is Waste Management. Why is this a must-own stock?

Clemons: If you think about it, no matter what's going on in the economy or the market, we generate garbage. And Waste Management is the leading player in taking care of that garbage. It's become a very environmental company as well. It's an essential product and service, and one in which there is pricing power.

TS: One international stock you like is Nestle.

Clemons: It's a company with a variety of products, and they sell those products in a variety of markets. It's a Swiss company, but it's really a multinational company. It also enables an investor in a portfolio to gain a little non-dollar exposure, which is not a bad thing.

TS: What role does gold play in a person's portfolio?

Clemons: It doesn't really play a role in an investment portfolio as we construct them. That's because gold is nothing more than the interaction of supply and demand. There is no underlying intrinsic value to it. There is no dividend yield and no cash flow. That makes it very difficult to analyze from an investment standpoint.

We find much better inflation protection in certain types of common equity than we do in gold—or any other kind of commodity, for that matter.

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