How One Stock Fund Spared Its Investors From the Worst of '08

By Stacy Rapacon
Kiplinger's Personal Finance
Sunday, December 28, 2008

Tom Forester, who runs the 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 percent cash hoard and bet on falling prices by using index put options to protect the 70 percent of the fund's assets that were invested in stocks.

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

The payoff for Forester's patience is the rarest of the rare: a stock fund that suffered little in 2008. It lost 4.3 percent for the year through Dec. 15. "This is an interesting time to buy," he said, "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; tobacco companies Altria and Philip Morris International; and makers of consumer necessities -- Kraft Foods and H.J. Heinz are the fund's two largest holdings. These companies all offer things people buy whether we're in a recession or not, he said.

Forester also favors Wal-Mart and McDonald's. He expects their businesses to pick up as strapped consumers look for cheaper alternatives. Forester has raised his stake in financials, to 14 from just 5 percent in early 2008, by adding companies such as Travelers 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 percent of its group three times and in the bottom 10 percent four times. Over the past three years, the fund has nearly broken even. Its annual expense ratio, at 1.35 percent, is about average.

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