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Finding Value After a Market Run


How fund manager Tom Forester sticks to a high-quality strategy.

Last year, Tom Forester distinguished himself from his rivals. The fund he managed -- Forester Value Fund (FVALX) -- was the only diversified equity fund to stay in the black even as the market crashed and burned.

This year, the 50-year-old manager is sticking with his tried-and-true investment method: hunting for big, high-quality businesses trading cheaply. Although the current rally has favored low-quality fare, Morningstar analysts note that Forester's conviction pays off over the long haul even if his history includes hot-and-cold results.

Through October 14, FVALX's 10-year annualized return of 5.30% beats the S&P 500 by 5.13 percentage points and bests its rivals by 2.41 percentage points, placing it in the top 12% of its category. Morningstar awards the fund five stars, its highest rating.

The no-load fund, with $93 million in assets, has an expense ratio of 1.29%, and minimum investment of $2,500.

Minyanville recently caught up with Forester at his office outside Chicago, where we chatted about the market, his top picks right now, and what he learned from legendary investor Sir John Templeton.

Minyanville: Explain the fund's investment strategy.

Tom Forester: We are a large-value fund. We buy low P/E stocks that are temporarily beat up, selling at low valuations, and that we think have tremendous upside potential to them. That upside would be market appreciation plus the realization of an extreme low valuation back up to a fair valuation. So you win twice.

Minyanville: The fund can also buy put options to hedge volatility.

Forester: Yes, we control risk as best we can. If we see a market that we think is extremely overvalued, like at the beginning of the decade, then we will protect the portfolio either using cash or some sort of a hedge like a put.

Minyanville: Have you tweaked the strategy at all during this recession?

Forester: No, I think we have just executed it during this whole time. We thought valuations were quite attractive back in March. We thought that valuations were taking into account much of what we saw out there. We were actually very bullish at the bottom.

Minyanville: And now?

Forester: Now the market has gone up 60%. We think there is risk out there. We are in the market, with some cash but not a lot. But we are actively looking at the housing market [for signs of a rebound].

Minyanville: Should we extend the tax credit for first-time home buyers?

Forester: It's like a car rebate, right? The idea behind the car rebate is so that people can finance the car. They have no down payment on the car because they can use the rebate as the down payment. That's all this game is -- a financing game. The government is making the down payment so people can buy houses, and keeping these things off the banks' books.
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