"There are times when investors need to choose between high quality stocks and lower quality stocks that are cheaper," he says. "The market downturn has eliminated that either-or decision and we've been able to pick up some great franchises at great prices." He adds that most of the companies in the portfolio are not experiencing significant declines in revenues or earnings, despite the severity of the current recession.

The fund typically holds 25 to 30 stocks with market capitalizations of at least $5 billion, and the top ten positions typically account for 45% to 50% of assets. The concentrated portfolio, drawn mainly from the S&P 500 index, reflects Hartch's conviction in his investment choices and the fund's ability to outperform the indexes. "If the stock market is generally expensive, owning a basket of 500 or even 1,000 names won't protect you from a broad market decline. And the problem is worse with index funds because they own more of companies after they have risen in value and less when they have declined."

Index fund investors discovered the dangers of overvaluation in 2000, when the S&P 500 dropped 47% and the NASDAQ fell 78% from peak to trough. "The equity investors who did best during the period invested in the subset of public companies that were still reasonably valued on an absolute basis," he observes.

Concerns about valuations as well as credit issues prompted the team to abandon banks as well as bond insurers MBIA and AMBAC three years ago. While the move occurred years before the fallout, the absence of bank stocks helped steady returns in 2008, when BBH Core Select became Lipper's top performing large-cap core fund.

Like other funds at the more conservative end of the equity spectrum, BBH Core probably wouldn't benefit as much from a roaring comeback in the market's most beaten-down sectors as some of its competitors would. "Given the kinds of businesses we own, we tend to see our best relative performance in down or sideways markets," says Hartch.

Core Select has participated in this year's rally, although some holdings have struggled. Aflac, which provides supplemental health and disability insurance in the U.S. and Japan, has a healthy insurance business and some of the highest renewal rates in the industry. But the value of some holdings in its investment portfolio has plunged, raising concerns about the company's ability to maintain acceptable statutory capital ratios. The stock plummeted nearly 57% in the first quarter, though Hartch says that Aflac's earnings and ability to raise additional capital from premiums should offset losses from its investment portfolios.

Berkshire Hathaway, the fund's largest position, suffered a setback in March when Fitch lowered its coveted AAA credit rating on the company to AA+. The rating agency cites, among other factors, the "key man risk" of the company (it's run by investing legend Warren Buffett), as well as declines in Berkshire's investment portfolio. Some observers have questioned whether Buffett's "buy and hold" strategy still works in today's market.

But Hartch says the company's strategies are as sound as they were before the crash, and that Berkshire Hathaway's insurance and utilities units are doing "extraordinarily well." Company subsidiary Geico has more than doubled its market share over the last decade as consumers switch from other, more expensive auto insurers to save money. The pricing power at reinsurance subsidiary General Re is also growing stronger, while Berkshire Hathaway's highly liquid balance sheet and modest borrowings add to its appeal.

BBH holdings Dell and Liberty Interactive have also seen significant sales and earnings declines. But their share prices have fallen so much that there is still a large gap between their intrinsic values and share prices, according to Hartch.

On the other hand, some holdings, many with high brand name recognition, have realized better-than-average performance. The fund has sizable positions in food and beverage makers such as Nestle, Coca-Cola, PepsiCo and Cadbury, whose products have very little competition from products of privately held companies. These companies still expect to generate revenue growth this year, despite economic weakness.