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Mutual Funds

The Leader of the Pack

A top fund in 2008, Forester Value started the year playing not to lose -- and ended it all in.

Tom Forester, who runs aptly named Forester Value (symbol FVALX) -- a top fund in a miserable 2008 -- spent most of the year stacking his chips and biding his time. For the first nine months, he built up a 30% cash hoard and used index put options (a bet on falling prices) to protect the 70% of the fund's assets that were invested in stocks.

But when Standard & Poor's 500-stock index began dipping below 900 in October and stocks looked cheaper than he'd seen them in 15 years, Forester pushed his chips into the middle of the table. "I'm all in at this point," he says.

The payoff for Forester's patience is the rarest of the rare: a stock fund that essentially broke even in 2008 (it lost less than 0.5% for the year through November 7). "This is an interesting time to buy," he says in something of an understatement, "and you will be rewarded if you wait a few years."

Forester typically likes large, underappreciated companies. In these unsure times, he's zeroing in on historically safe firms with strong balance sheets. Among his favorites are health-care stocks, such as insurer UnitedHealth Group (UNH), and tobacco companies Altria (MO) and Philip Morris International (PM); makers of consumer necessities Kraft Foods (KFT) and H.J. Heinz (HNZ) are the fund's two largest holdings. These companies all offer things people buy whether we're in a recession or not, he says.


Forester also favors Wal-Mart (WMT) and McDonald's (MCD). He expects their businesses to pick up as strapped consumers trade down. And Forester has raised his stake in financials, to 17% from just 5% in early 2008, by adding companies, such as Travelers (TRV), that he says "don't have too much exposure to the toxic stuff."

Be forewarned that, compared with other large-company value funds, Forester's results have been inconsistent. Over the past seven years, the fund has been in the top 20% of its group three times and in the bottom 10% four times. Over the past three years, the fund has nearly broken even. Its annual expense ratio, at 1.35%, is about average.