Top Fund Managers Advise How to Play the Market

It’s an all-star investing theme day at CNBC Wednesday, and we're talking to five-star fund managers to get their best advice on where to put your investment dollars in the current market.

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Let's start with bonds. Things have gotten a lot tougher for fund managers, even those rated five stars by Morningstar such as Jason Brady, head of fixed income and managing director with Thornburg Investment Management.

His funds are up 2 percent so far this year, and he controls $14 billion.

"The market is central bank driven. So I’m feeling pretty cautious right now," he told CNBC's "Squawk on the Street". Investors are being driven out of "risk-free assets" like Treasurys and into riskier assets including stocks, high-yield bonds and convertible bonds. That's what he's doing in many of the funds he manages.

"You have to start thinking about risk assets as part of capital preservation, and that’s driving people into stocks and convertible bonds as well," he said. "You have to have a much broader view of risk right now and I think that’s a challenge for some people."

That makes it tough for a fund manager where the goal is capital preservation. "Capital preservation in this market is probably the hardest job we have because when you take away the risk-free assets, you make it risky because you put prices up artificially," he said. "What does capital preservation mean anymore?"

Next up, small-caps . Brian Barish, president and director of Research with Cambiar Investors, told Squawk on the Street in a separate interview the small-cap market can continue to do well. But he warned that "it's a very fragmented and diffused market, so making sweeping generalizations is tough."

However, he is finding "a lot of pockets of interest in technology, industrials, in energy, in healthcare — and just continuing to be opportunistic."

If you take technology, it's been dominated by tech giants, like Apple, IBM and Intel, but, Barish noted, there's a "very diffuse range of companies in industrial, semis, specialty, software — various kinds of services that may be up a little bit for a year but they haven't done a whole lot and valuations remain compressed. So we like that."

As more investors get back into the stock market they are trying to become more educated about where to put their money.

Kathleen Murphy, who runs Fidelity's personal investing division that handles about one-third of the company's $3.7 trillion in assets under administration, told Power Lunch she can't blame investors for becoming more conservative and staying out of stocks after the financial crisis in 2008 and 2009.

She said target funds, which shifts the percentage of stocks, bonds and cash as a person ages to a set retirement year, are a good strategy for people who don't feel confident in making their own asset allocation decisions.

But it's up to brokers and companies like Fidelity to do more to educate investors.

"They learned in a very concrete way how much risk they could stomach," she said of investors. "We need to do more. No question that people weren’t as prepared as they should be" during the downturn.

What about specific sectors? Energy is a hot one as the U.S. works to develop its own oil and natural gas to get off foreign imports. Mark Kiesel, manager of the five-star Pimco Investment Grade Corporate Bond Fund, told Street Signsthe companies that have pipeline assets or large acreage positions in some of the big U.S. shale fields are going to profit from this increase in production.

That means Anadarko Petroleum , Plains All American Pipeline , Continental Energy and EOG Resources , he said.

"The United States has the ability to get off foreign oil in the next 10 to 20 years. That’s revolutionary," said Kiesel. "We’re now one of the lowest-cost gas producers in the world, which is transforming our chemical fertilizer sector as well as manufacturing industry.

"So these companies that are close to the shale regions…have an incredible ability to produce free cash flow, pay down debt as well as benefit equity holders, too."

Some managers like the niche approach. Sandy Villere, portfolio manager of Villere Balanced Fund, looks for U.S. companies that are trading at price to earnings multiples that are "less than their growth rates, and try to find things that maybe Wall Street hasn’t picked up on," he told Street Signsin a separate interview.

So one of his picks is NIC, which helps state and local governments seeking to streamline their costs by automating their online services. Another is Luminex that sells technology used by the life sciences industry. But one of his favorites is Pool, the largest distributor of swimming pool products.

"As long as you believe people will continue to maintain their swimming pools, put the chemicals in it and fix the pieces that are broken and not let it turn green or black or fill it in, we think it’s going to do well over time," he said.