Concentrated Funds for Bull, Bear Markets

In recent months, Forester has grown more optimistic about the markets. He has lowered his cash position and begun buying companies that will benefit sharply from a rebound in the economy. A favorite holding is Hewlett-Packard(HPQ). Computer sales are depressed now, but they should revive eventually, Forester figures.

Like Forester, Osterweis hits the brakes when trouble appears. Last fall, the fund sold financials and shifted to cash. Manager John Osterweis remains wary, still keeping about a third of assets in cash and bonds. The caution has helped limit losses in bad years. Osterweis outperformed 99% of its mid-cap blend competitors in 2002, and last year the fund surpassed 89% of peers. During the past five years, Osterweis has returned 2.3% annually, beating 95% of competitors.

Osterweis prefers undervalued companies with good cash flows. The fund owns only about 30 stocks. In many cases, the holdings face problems, and investors expect the businesses to achieve little growth. Osterweis buys when he thinks a company can surprise Wall Street.

A favorite holding is NV Energy(NVE), a power producer in Nevada. The shares were pummeled when investors worried that housing problems would hurt Nevada's economy and reduce demand for power. But Osterweis says the company remains on solid footing. "As long as people are in Nevada, they are going to have to turn on the lights," Osterweis says.

Another holding is Unilever(UN). The consumer giant has suffered from weak profit margins. But the balance sheet remains strong, and the company is moving to cut costs and boost earnings. Osterweis figures that Unilever can grow, even during a period when the global economy may be weak.

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