If financial advisers are trying to figure out where to find decent returns in the equity markets this year, they might want to seek out Tom Forester — the only portfolio manager whose mutual fund produced a positive return last year.
Last year's 0.4% return for the Forester Value Fund (FVALX), made it the only one in Chicago-based Morningstar Inc.'s universe of 1,700 diversified funds that finished 2008 in positive territory.
Usually, the return would be a snooze, yet last year, it meant that Mr. Forester outperformed the Standard & Poor's 500 stock index by almost 40 percentage points. The fund has an expense ratio of 1.35%, compared with its peers' average of 1.27%.
In an interview, Mr. Forester said that he outperformed all his peers by carefully getting more defensive than usual. That meant shedding exposure to financials in particular in favor of stocks in the less-manic health care and consumer staples sectors.
Also, Mr. Forester said he found himself at times sitting on unusually large cash positions when the markets appeared anything but certain.
That was the case in September, when he kept about 30% of his fund's assets in cash after Lehman Brothers Holdings Inc. was forced to file for bankruptcy and Merrill Lynch & Co. Inc. was paired up with
Bank of America Corp.
Lehman Brothers and Merrill are based in New York, and BofA is based in Charlotte, N.C.
To be sure, other managers are constrained by their prospectuses from holding that much cash.
Nevertheless, the days of playing defense are done and Mr. Forester said he has already started getting more aggressive.
While he expects the markets to remain murky for the first half of the year, he has started trimming back on his health care and consumer staples holdings and is restoring a bigger position in financials.
Mr. Forester has about 12% of his fund's $65 million invested in various financials — mostly insurers, he said — compared with just 5% for most of last year. "I'm looking to play the field for now and take smaller pieces in a wider number of financials," he said.
Mr. Forester is also looking at energy and oil companies and is upping his exposure.
"Oil at $35 a barrel is obviously much more attractive than when it was $150," he said.
Reaping the rewards of substantially undervalued assets is nothing new to Mr. Forester, whose fund has outperformed the S&P by about seven percentage points over the past nine years.
He thinks there is still a pretty good chance to come out on top this year — or close to it — if he plays these sectors properly.
"With the markets at these levels, there are attractive opportunities in just about all sectors," Mr. Forester said.
— Mark Bruno
