While some advisors prefer to allocate to mutual funds that stay within the limits of the style box, others have a mandate through their investment policy statements (IPS) with clients to allocate a portion of assets to a manager or managers that can go anywhere. Go-anywhere funds are not restricted by style boxes, affording them the opportunity to tilt toward larger or smaller market caps, or value, blend or growth.

John Osterweis (left), chairman and CIO of San Francisco-based Osterweis Capital Management, is one such manager. The firm’s flagship Osterweis Fund (OSTFX), gets four stars overall from Morningstar, and has returned an average 5.49% annually for the 10 years ended Feb 15, 2011, beating the S&P 500 by 3.57% a year.

Osterweis told AdvisorOne on Wednesday that although the recovery underway may be “anemic by historical standards … it is morphing into a sustainable expansion.”  He added that “companies are reporting much better than expected profits because of massive cost cutting.” Osterweis notes that “commodity inflation” is a risk. This goes “hand-in-hand” with interest rates probably hitting the “lows for the cycle.”

Osterweis thinks of OSTFX as a “core holding” for individual investors, although he notes that many advisors use it as a satellite if they use passive indexes for the core. But he explains that when markets trend down, indexing doesn’t work so well, and active investing could be a plus then. While technically classified as a mid cap blend fund, for the flagship, Osterweis says he’s been seeing more opportunity in larger–cap stocks, so he has added some of those to the portfolio.

The firm also has an income fund, Osterweis Strategic Income Fund (OSTIX)—a “go-anywhere” bond fund that has core fixed-income holdings. He’s shortened the duration of that fund to about “2 years” to protect against rising rates.

For investors that need “income and growth,” his firm launched the new Osterweis Strategic Investment Fund (OSTVX), on Aug. 31.

Founded in 1983, the firm manages about $5 billion in assets.