Wednesday, January 07, 2009

Top fund manager in '08: How'd he really do it?

A WSJ story, “Why Forester Finished First,” reports that Tom Forester, manager of Forester Value fund (FVALX), was up by 40 bps in 2008.

But the story doesn't exactly say how he did it. It says he held up to 30% of his fund in cash. But that kind of cash allocation alone wouldn't have avoided the rout without some fancy market timing.

An October 2008 note from Morningstar says Forester was up 11.5% through September, by avoiding large stakes in financials and loading up in consumer staples and health care.

Yes, sector selection is important.

But it also looks like this fund missed the rally from 2003.

Swing-for-the-fence guys look great during bull runs. Super conservative deep-value guys like Forester look great in times like these.

Is it possible to get most of the best of both worlds in one manager???

Fed may target inflation to deflect deflation

I think the FT gets it right in its story's lede on the latest Fed minutes--the U.S. is establishing a de facto inflation target to shore up the public expectations of positive inflation, and so make it less likely that a deflationary dynamic could take hold.

Paul Krugman and others have been warning about how monetary policy may no longer be effective, and how important inflation expectations may be in encouraging spending and boosting demand, and hence snapping us out of a depression/deflation problem.

Notice how the WSJ buries the inflation target news at the bottom of its story.