He says that while about one-third of the holdings in the IVA Worldwide fund and the First Eagle Global fund overlap, the two funds are more like distant cousins than siblings in their composition. The latter fund has a much lower percentage of assets in bonds and more exposure to gold than IVA Worldwide. The First Eagle fund also gains some of its gold exposure through mining stocks, while IVA sticks strictly to bullion.

"Overall, we are better at picking stocks and have better downside protection," says de Vaulx.

Bracing For A Slow Recovery
That protection will be key to weathering the tough economic times he sees ahead. Instead of a classic V-shaped recovery, he sees economic growth topping out at 2% to 2.5% over the next three to five years. That falls short of the 3% growth he says is necessary for job creation.

"Downturns caused by too much credit in the system are not typically followed by a normal recovery," he says. "Small businesses create jobs and there is no evidence they are expanding. And Americans can't spend because they don't have their homes to use as an ATM machine anymore."

The picture looks even worse in Europe, where economic growth will likely be mired in the 1% to 1.5% range for the foreseeable future. Even the relatively strong economies like those in Germany and Switzerland will be affected, since they are not exporting as much to weaker Southern European nations such as Portugal and Italy.

While emerging economies such as China's are likely to fare better, de Vaulx believes it may be difficult for them to decouple completely from the world's weaker economies. Those countries like Brazil and Argentina that have thrived amid rising commodity prices could suffer a setback if prices weaken.

"The good news is valuation," he says. "Many markets are trading well below the levels of two or three years ago. Company balance sheets are looking better and corporate profits have held up well. And compared to most bonds, equities look relatively cheap."

At the end of April, the fund had more than 20% of its assets in cash-not unusual, since de Vaulx would rather keep money on the sidelines than stay fully invested if he sees nothing he wants to buy. But since April, he has taken advantage of stock market volatility to pick up securities he considers undervalued. He started making a number of purchases concentrated among larger, well-capitalized U.S. companies, and by late July, his cash levels had fallen to around 9% of assets.

He suspects some of these blue chips are undervalued because hedge funds, which gravitate to more exotic fare, simply aren't interested in them. "A few years ago, small and mid-cap stocks were cheap and large companies were expensive," he says. "Now, it's the other way around."

His bargain hunting has led him to technology stocks, where he has been adding to positions in familiar names such as Dell Computer and Microsoft. At prices between six and nine times operating income, he calls the stocks "safe and cheap." But he isn't totally enamored of the way tech companies are using their excess cash to make high-priced acquisitions. "I'd rather see them buy back stock or make a special cash dividend before tax rates increase," he says.