Thomas Forester - Forester Value Fund

Forester Value Fund

In 2004, the fund was subject of controversy when Morningstar attempted to reclassify it into the conservative-allocation fund category. Mutual fund managers, including Forester, believed that the fund belonged in another classification such as a large-cap value fund, which is how Lipper had it classified. Value Line Inc. classified it as an income fund at the time. The move bumped Alpha Hedged Strategies Fund out of first place for its classification year to date as of November 1, 2004. The controversy not only led to complaints directly to Morningstar, but also to the Securities Exchange Commission.

In 2008, there were 8200 diversified United States stock mutual funds, and they averaged a negative 39% rate of return. 1,700 of these funds have been in existence for over three years and have assets of at least $50 million. Forester's Forester Value Fund (FVALX), which is Morningstar five-star-rated, gained .4% in 2008 although one year it lagged the Standard & Poor's 500 (S&P 500) by 30%. The fund, which had been up 7% through June 30 by avoiding the housing crisis and the credit crisis, was down 4.3% on the year through December 15 and 0.82% on the year entering the last day of trading. In 2008, the second best of the 1,700 funds was Mario Gabelli's Gabelli ABC Fund, which lost only 2.6%. Morningstar tracks a total of 9,918 mutual funds that averaged a 39.1% loss in 2008. Much of Forester's success was attributable to large cash positions. However, he also benefited from several timely trades in the banking sector, health care. His fund held positions in countercyclical stocks that perform well in recessions. He had also held large cash positions during the dot-com bubble. In the third quarter of 2002, his fund was one of two out of 6000 that turned a profit. One of the most important financial ratios for Forest was the ratio of home prices to incomes, which helped him foresee trouble in the housing market.

He has had very inconsistent returns managing his fund. During the last seven years, his fund has been in the top 20% of its peer group three times and in the bottom 10% four times. Over the past three years, the fund has nearly broken even. Forester's fund has a 1.35 expense ratio. Through 2008, the fund had a five-year total return of 25%. His fund's three-year and five-year averages are 9% and 7.5% ahead of the market. He is a low P/E investor who buys with full market cycle investing in mind.