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Forester Goes Big on 'Discovery' Picks

Stocks in this article: INTLXOAKEXSIBTITYBYFMXSAP

(Editor's note: TheStreet today named 111 mutual funds and exchange traded funds, or ETFs, winners and runners-up in its first annual awards ceremony. A list of the funds and related articles can be found on the awards page.)

BOSTON ( TheStreet) -- Thomas Forester says his namesake Forester Discovery Fund (INTLX) is a "sleep-at-night" investment, as he avoids undue risks.

Forester, who has overseen the fund since 1999, is avoiding shares in countries facing budget crises, such as Greece and Portugal. The fund is investing in more highly developed and financially stable countries. It holds 29 stocks of companies that are based outside the U.S., most of which have a multinational presence.

"We look at minimizing downside risk and volatility," Forester said in an interview from his office in Broadview Heights, Ohio.

Thomas Forester: Worry-free investing

Forester Discovery had a hefty 45% in cash and equivalents at year-end, but has done well with big bets, at roughly 3% of the fund, on technology giant Siemens (SI), British telecommunications firm BT Group (BT) and Imperial Tobacco (ITYBY). The fund is heavy on consumer staples, at 11.5% of assets, followed by financial services, at 7.3%.

The mutual fund has climbed an annual average of 9% in the three years through Dec. 31, earning TheStreet's 2011 Best Funds award for the international core category. This year it's up 2.9%. Performance and risk each account for half of the total weighting. The runner-up was the Oakmark International Small-Cap Fund (OAKEX).

The fund's investment target is companies with market values of more than $5 billion and price-to-earnings ratios that are lower than industry averages. What Thomas Forester likes, he buys a lot of. The Forester Discovery Fund holds 56% of its assets in its top five positions.

The fund's interesting portfolio picks are as follows.

Siemens, an internationally recognized German technology conglomerate, with a market value of $114 billion, is up 13% this year, after gaining 37% in 2010, so it has served this fund well. The company makes up 3.4% of the portfolio.

A new wrinkle is that Siemens, as the No. 1 provider of offshore wind turbines and the only major company to offer deep-sea wind turbines, could see a potential boom for that business as the world attempts to deal with the Japanese nuclear crisis and its lingering effects.

Demand for infrastructure in emerging economies will propel Siemens' earnings for at least the next five years.

Imperial Tobacco, from the U.K., has a $32 billion market value and is the world's fourth-largest international tobacco company. It's been acquisitive in building its business base to access more markets. Because of that, Imperial Tobacco offers a range of brands across a spectrum of prices, helping to cushion downturns.

Thomas Forester said Imperial Tobacco is a new add to the fund. The company has long been undervalued even though the shares gained 36% last year and are up 12% so far in 2011.

Another new purchase for the fund is French tire maker Michelin (MGDDY), at just under 2% of the portfolio.

Michelin makes and sells tires for all kinds of vehicles, publishes maps and guides, and operates a number of digital services in more than 170 countries.

Fund manager Forester said it's a play on the view that car owners are now in a cycle of having to replace the tires on their older vehicles as so few bought new ones in the recession.

Michelin's price-to-earnings ratio is 9.6, versus 15.6 for its industry peers, so it fits into Forester's value picks. The Forester fund is by far the largest U.S. mutual fund investor in Michelin.

Michelin is up 29% this year, about the same as its one-year record.

Mexican Economic Development (FMX), known as Femsa, owns and runs the equivalent of the 7-Eleven convenience store chain here in the U.S. throughout Latin America and Mexico. It's also the distributor of Coca-Cola (KO) in that region.

Femsa also owns a 20% stake in Dutch brewer Heineken (HINKY). Coca-Cola Femsa is the largest Coke bottler in Latin America, and Femsa's Comercio owns the Oxxo chain of convenience stores in Mexico.

The company accounts for 2.3% of Forester Discovery's assets. Its shares are up 13% this year and 35% over the past year.

SAP (SAP), the German software industry giant, has been a long-time holding of the fund, Thomas Forester said.

It makes up just over 2% of the portfolio and has risen 30% over the past year, giving it a market value of $70 billion.

SAP's enterprise-application software is used for accounting, customer-relationship management and supply-chain management.

For fiscal 2011, analysts estimate SAP will earn $2.61 per share, according to Standard & Poor's, and that is seen growing 12% in fiscal 2012, to $2.92 per share. It has a forward price-to-earnings ratio of 14.2, about a third less than some of its industry peers.

TheStreet awarded "Best Mutual Funds and ETFs 2011" to 111 funds, half of which were winners in their investment category and half runners-up. The criteria are as follows: Mutual funds must have had a three-year history as of Dec. 31 and been open to new client investments, with the minimum not exceeding $100,000. Closed-end funds and ETFs must have had a one-year track record. The rating is based equally on performance and risk. Emphasis is given to longer-term performance, based on total returns minus expenses. Risk measures include standard deviation, size of peak-to-trough (drawdown factor) and duration.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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