"In terms of quality and price, Target is the only mass merchandiser that can effectively compete with Walmart for discount shoppers, and it offers a more upscale shopping experience," he says. "That worked against it in the depths of the recession. But now that consumer confidence is improving, I think people will look beyond just getting the cheapest prices."

With fewer than 50 holdings and a heavy concentration in basic industries and capital goods, which together account for around 30% of assets, the fund takes a fairly concentrated approach. It also eschews energy stocks, an important component of many large-cap funds, because the earnings of those companies are somewhat unpredictable.

Although Morningstar categorizes it as a large blend fund, small and mid-size companies make up a key element of its portfolio. Companies with over $5 billion in stock market value, which Frels defines as large caps, account for 55% of equity assets. Mid-caps with between $1 billion and $5 billion account for another 40%, and small companies come in a distant third.

"In this region, there are more small and mid-cap names we find attractive, so that's where we focus most of our new purchases," says Frels. "Our larger company holdings are more geographically diverse." He believes that although small and mid-cap stocks are expensive relative to large caps, their superior growth attributes will allow them to outperform over the next three to five years.

One small company holding, Eden Prairie, Minn.-based Stratasys, was added to the portfolio in 2009 after conversations with management convinced Frels that the company's three-dimensional printer and production systems were unique to the industry and an effective tool for developing prototypes more quickly. The company recently signed a distribution deal for its products with Hewlett-Packard.

An overweighting in small- and mid-cap stocks relative to its peers in the large-blend category has helped the fund pull ahead of the pack, according to Morningstar analyst Josh Koeck, and over the last ten years it has performed better than 98% of such funds. While the focus has worked in its favor over the long term, Koeck cautions, it can also lead to periods of underperformance when large-cap stocks pull ahead.

Frels says the conservative leanings of the fund, which emphasizes companies with strong, predictable earnings and solid balance sheets, means that "our stocks will rarely outperform in a strong market. But they usually hold up better in poor or mixed market environments." Those assertions held true both in the bear market of 2008, when the fund performed over 9 percentage points better than its category peers, and in 2009, when it underperformed them by 5.65 percentage points.

As 201l begins, Frels says prospects for the stock market remain "quite promising, considering the outlook for corporate earnings together with the historically low level of interest rates. Dividends yields for many companies are higher than bond yields, which suggests stocks are still cheap."

Another measure, earnings yield, also appears reasonable compared to bonds. An earnings yield is the reciprocal of a price-earnings ratio. So if a stock trades at 20 times earnings, it has a 5% earnings yield (1 divided by 20).

"Ten-year Treasuries are yielding around 3%, while the earnings yield for stock is around 7%. That's wide by historical standards," he says. "Stock valuations aren't in the bargain bin, but they're still quite reasonable, especially when you compare them to bond interest rates."