Value Line Asset Allocation ( VLAAX) is another fund that made money in the downturn of 2000. The fund's stock allocation has gone as low as 40% and as high as 100%. Portfolio manager Steve Grant uses a model that takes into consideration the valuation of stocks and the direction of share prices. His ideal stocks would be cheap and heading higher.

During the past five years, Value Line has returned 10.04% annually and outdone 96% of its competitors in the moderate allocation category.

Currently, Value Line has 75% of its assets in stocks. "We are positive on stocks, but not as super bullish as we were a few years ago," says portfolio manager Steve Grant.

Some funds regularly sell stocks and shift to cash. The managers say that they are not making market forecasts. Rather the funds hold cash because there are not enough bargain stocks available. Such funds may not be true market timers, but several managers in the group have long achieved top records by holding big cash stakes in downturns.

The cash position in FPA Crescent ( FPACX) has varied from 20% to 55% of the fund's assets. A big cash stake helped the fund return 3.59% in 2000. During the first six months of 2008, FPA returned 2.97%, a smart showing in a period when the S&P 500 lost 11.96%. The fund returned 9.58% annually during the past decade and outdid 97% of competitors in the moderate allocation category.

Portfolio manager Steven Romick follows an unorthodox style, buying whatever assets seem most undervalued. Besides cash, he often holds a mix of stocks, convertibles, and high-yield bonds. Romick's aim is outdo the stock market while taking less risk. Most often he succeeds. Gloomy about the market outlook, Romick has been holding 35% of assets in cash.

Big cash positions have helped Mutual Qualified ( TEQIX) avoid losses in downturns and return 8.23% annually for the past 10 years. The fund typically holds between 5% and 20% of assets in cash. Lately the figure has been around the high end of the range because the fund managers have been hard-pressed to find compelling bargains.

"Share prices have declined, but earnings prospects have also come down," says portfolio manager Shawn Tumulty.

A deep-value investor, Mutual Qualified seeks stocks that sell for only 60% of their fair value. Besides stocks and cash, Mutual Qualified also holds distressed debt, bonds of shaky companies.

During the bull market of recent years, the fund had trouble finding tempting distressed bonds. But with the markets now facing difficult prospects, the Mutual Qualified managers are confident that there will be plenty of opportunities for investors seeking attractive fixed-income investments.
Stan Luxenberg is a freelance writer who specializes in mutual funds and investing. He was formerly executive editor of Individual Investor magazine.

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