(Bloomberg) -- Like many of his peers over the past two years, Jeff Muhlenkamp feared a recession was nigh, prompting him to keep a big chunk of client money in cash while resisting richly valued stocks after their outsized rally.

With Muhlenkamp’s defensive posture causing him to miss out on fresh market gains, the army officer turned money manager is no mood to repeat the same mistake as he dials back skepticism across his $230 million portfolio. Even as angst grips Wall Street on softening data and Donald Trump’s trade war, the Wexford, Pennsylvania-based investor says economic worries look overblown.

“It’s hard to build a really bad bear case,” said Muhlenkamp, who turns 59 this month. “Even though it’s expensive, when you look at what really kills the market — liquidity dries up, recessions, banking troubles — you are not seeing too much of that.”

The way he sees it, while US manufacturing has mostly contracted in the past two years, the majority of the services economy is holding up. And the recent shift in the Treasury yield curve is set to benefit lenders.

The benign assessment comes as Treasury Secretary Scott Bessent warned that the economy may see some disruption ahead amid the Trump administration’s effort to shift the basis for growth away from the government and toward the private sector. Stocks wavered in early trading Friday despite a relatively steady jobs report.

Muhlenkamp’s value fund has beaten 90% of its peers in the past five years, slightly edging out the S&P 500 – a considerable feat given the famous underperformance of active managers across the investment-management industry.

Now, the investor is eyeing up a cohort of beaten-up chip makers and chemical producers, some of which are trading near cycle lows relative to book value or sales.

Muhlenkamp’s fund has snapped up Chinese stocks over the past 12 months and doubled its exposure to gold through shares of miners. As a result, cash holdings stood at roughly 10% as of December, down from 44% at the end of 2022.

A risk-off mood has swept markets in recent weeks as investors fled high-flying technology megacaps and sought safety in government bonds. The S&P 500 has fallen 6% from an all-time high reached last month, with intraday reversals multiplying amid Trump’s unpredictable policy on tariffs. Along the way, high-conviction trades are getting reconsidered and leverage is being unwound.

Whether more losses are in the store — or the market heads for a prolonged bout of sideway moves — is anyone’s guess. What’s less in doubt: the retreat in animal spirits puts the market on a healthier footing to absorb any fresh volatility-inducing headlines, says Muhlenkamp, a former US army lieutenant colonel.

“You’re going from an environment where everybody was certain to an environment where nobody is certain, and in and of itself that will impact the market,” he said.

The Muhlenkamp Fund (MUHLX), started by Ron Muhlenkamp in 1988, specializes in finding cheap-looking stocks. Jeff Muhlenkamp joined his father’s company as an analyst in 2008 after retiring from a 20-year service at the army. He became a co-manager six years later and took over the fund in 2018.

Thanks to a defensive stance, the fund delivered gains during the 2022 bear market. Yet that caution backfired in the following two years as stocks rallied back. Still, the fund has returned 16% annually during the past five years. It’s up 2% in 2025, compared with a loss of a similar size in the benchmark.

The enduring performance stands out in a post-pandemic market where value managers have largely struggled to keep up with the tech-driven rally. Muhlenkamp counts drug distributor McKesson Corp. and commercial-vehicle dealer Rush Enterprises Inc. among his top holdings.

Another major issue facing the market is the swelling fiscal debt that may force the Federal Reserve to keep interest rates low, according to Muhlenkamp.

While lower rates help the government service its borrowing, the policy risks working against the central bank’s inflation-fighting goal. In that scenario, 10-year Treasury yield has a shot at rising to 6%, while dollar continues to weaken, bolstering commodities like gold and oil, says the manager.

“The debt problem has worked its way all the way up to the top,” he said. “We’re just going to spread the pain. And that pain is called inflation.”