If you don't think mutual funds are exciting, think again. Funds can surge and plunge, just like stocks, but a rising fund won't necessarily keep doing so. Still, volatility isn't a reason to rule out a fund. Just look at the Forester Value (FVALX) fund.
When the gruesome year 2008 ended, Forester Value stood alone as the only U.S. stock fund still in the black. Fund manager Tom Forester managed that by avoiding the free-falling financial sector in favor of defensive stocks such as McDonald's and Johnson & Johnson (NYSE: JNJ).
Part of Forester's success was also tied to being heavily in cash for part of the year, thereby avoiding losses with that money. He was reportedly heavy on cash again recently, to the tune of 18% of the fund's assets as of the end of March. If the market surges soon, being in cash could hurt him. Still, a good investor follows his or her convictions, and as of late March, Forester seemed to expect bigger bargains in the future.
The next chapter
After Forester Value's terrific 2008 performance, many people would have expected its success to continue. But the best fund one year can easily be the next year's big loser. Forester wasn't exactly a loser, but it did drop from being in the top 1% of peer-group funds in 2008 to the bottom quarter of the pack in 2009. This yo-yo effect is nothing new: The fund went from first to last between 2003 and 2004.
That said, Forester has beaten the market over the past three, five, and 10 years. When the market has dropped sharply, the fund has often fared especially well, smoothing the overall ride for shareholders.
The future matters most
In Fortune magazine, Forester recently waxed bullish on Hewlett-Packard (NYSE: HPQ), praising its cheapness and expecting HP to benefit as the economy recovers and companies upgrade their technology. He's also recently mentioned Microsoft (Nasdaq: MSFT), which he also expects to benefit from the economic turnaround and from the upcoming release of the new version of Office. These were his fund's top two holdings as of the end of March.
Forester has explained: "I'm basically a low P/E buyer. Low-valuation stocks generally get the best performance over a full market cycle." He's made Bristol-Myers Squibb (NYSE: BMY) and Johnson & Johnson two major recent holdings, both of which have low P/Es around 13. Forester also favors dividend yield, and these companies have good yields and payouts that have risen over time. In addition, he's carrying a fair amount of cash, suggesting that he sees better bargains on the horizon.
If you want a conservative, value-focused manager at the helm, then Forester Value is a fund worth considering -- provided you've got the stomach for its ups and downs.
