NEW YORK ( TheStreet) -- As markets sank in 2008, some top funds played defense. The portfolio managers held cash and avoided shaky stocks. The moves worked, enabling the funds to outdo competitors during the turmoil. This year some of the cautious performers have been lagging. Worried about the outlook for the economy, the managers are still holding some cash and sticking with rock-solid stocks. That has held back returns as markets have climbed. But shareholders of the conservative funds should not be discouraged. The cautious approach can help to stabilize portfolios. And by avoiding big losses in downturns, the conservative funds can deliver solid long-term returns. Consider Forester Value ( FVALX), which has 18% of assets in cash. This year, the fund has returned 2.3%, lagging its large value competitors by 3 percentage points. But Forester's long-term record remains sterling. During the past five years, the fund has returned 3.6% annually, outdoing 96% of peers. Besides holding cash in uncertain markets, portfolio manager Tom Forester limits risk by buying puts, options that increase in value as stocks fall. The strategy worked brilliantly in 2002. In a year when the S&P lost 22.2%, Forester returned 5.7%. In 2008, the fund won attention by being the only diversified domestic equity fund to stay in the black. As stocks reached bargain levels in the first quarter of 2009, Forester used all his cash to buy stocks. But this year, he has grown wary again, concerned about European debt problems and U.S. budget deficits. "We are being a bit cautious because there is a lot of risk in the world right now," he says. Forester aims to find discounted companies that have the ability to improve sales and earnings. To find promising shares, he starts by combing through the ranks of stocks with the lowest price-to-earnings ratios. If none of those have positive outlooks, the portfolio manager will take more expensive names. The idea is to own the cheapest stocks available with solid prospects. He recently bought Kroger ( KR), the supermarket chain. The stock has a forward P/E ratio of 11. That is a cheap price for a company that can grow in difficult markets, says Forester.