Top-performing fund manager Steven Romick, who often targets smaller stocks, is finding that the current market environment has larger stocks looking attractive because of their valuations.

“We think owning good, large-cap, global, and growing businesses are a good place to invest today,” Romick tells Morningstar. “Those of which cannot adequately reinvest their capital should pay higher dividends.  Wal-Mart (WMT) is an example of that. Its dividend growth far outstrips its earnings growth, and we expect that to continue into the future.”

Bonds, however, are another story. “We refuse to own long-dated bonds of any ilk, particularly U.S. Treasuries,” Romick says. “We cannot understand a world where people are willing to lend to the U.S. for 1.8% for 10 years or 2.8% for 30 years.”

Romick also discusses how to avoid value traps. “When we analyze a company — its business, its industry, their financial statements, and its valuation — we try to make sure that the company has the ability to grow its revenues,” he says. “So-called ‘value traps’ are usually found in those companies that do not have the ability to increase their top line. We believe that this focus will limit (but not eliminate) our mistakes.”