Concentrated Funds for Bull, Bear Markets

Forester Value Fund(FVALX Quote) returned 0.4% last year and won a place in the record books. Of more than 4,500 domestic equity funds tracked by Morningstar(MORN Quote), Forester was the only one to finish in the black for the year.

While luck surely played a role in the winning performance, it shouldn't be surprising that Forester finished in the top ranks. The fund has long followed a pattern, excelling in downturns and lagging during good times. In 2002, a year when the S&P 500 lost 22%, Forester returned 5.7% and outdid 99% of domestic equity funds. The fund finished near the back of the pack in 2006, a year when the S&P 500 returned 16%.

Forester delivers extreme results partly because it keeps a concentrated portfolio, typically holding about 40 stocks. In contrast, most domestic equity funds hold more than 100. Because they place big bets on a few names, concentrated funds like Forester can be volatile, leading one year and lagging the next. ...