The uncertainty in Europe has pushed the Forester Value Fund Ticker:(FVALX) into a defensive mode, but that's far from sitting on the sidelines, according to Tom Forester.
“If you just stay in money markets, you might miss out when the market goes down, but you also miss out when the market goes up,” said Mr. Forester, chief executive of Forester Capital Management. “And once people go into money market funds, they never get out.”
Regarding the 20% allocation to cash in the $220 million large-cap value fund, Mr. Forester said: “There has been too much volatility recently in the markets but we haven't gone anywhere.”
Cash is just one of the ways Mr. Forester hedges risk in the 40-stock portfolio. He also buys S&P 500 put options to protect on the downside when the markets get choppy.
While it might be easy to challenge the logic of having such a heavy cash position in a fund designed for active management, the 12-year track record suggests the strategy works. Since inception, the fund's only negative year was a 5% decline in 2007 — and on a cumulative basis, the fund has gained 80% over the past 12 years.
The cumulative return of the S&P 500 over the same period is 10%.
Through Dec. 13, the fund, which has a five-star rating from Morningstar Inc., is down 1.6% for the year.
Over the same period, the S&P is down 0.6%, and the Morningstar large-cap value category average is down 3.8%.
“Investors pay us to be like an absolute-return fund,” Mr. Forester said.
The bottom-up stock picking focuses heavily on low price-to-earnings ratios of companies with market capitalizations of at least $5 billion.
Two of the largest positions in the fund reflect a defensive slant toward big dividend payers: Chevron Corp.Ticker:(CVX) and tobacco giant Altria Group Inc. Ticker:(MO).
“Even though we're fundamental investors, we still pay attention to the macro picture, and we're a bit cautious right now because a lot of the large-cap companies get 30% to 40% of their earnings from Europe,” Mr. Forester said. “We want to be overweight the more-stable sectors like consumer staples, health care and utilities.”
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