Here is something you don't encounter much these days: a mutual fund with positive returns. Yes, positive, at least as of Oct. 31, 2008. The fund in question is Forester Value, a small value offering that managed to eschew troubled financial services firms before the market meltdown began.

Forester's positive numbers do sometimes seem to be a bit of a mirage. They appear at different moments. If it happens to be Oct. 20, then Forester is up a touch over 1%. If you look again on Oct. 24, it's down in negative territory. And then on Oct. 30, it's in the positive camp once more.

Even so, just flirting with positive returns in a year as abysmal as 2008 is enough to get attention and put the fund in the top ranking among large- cap value funds. With a 2.4% year-to-date gain through Oct. 31, the tiny $31 million Forester Value is leaps and bounds ahead of the S&P 500's 32.8% decline this year. The fund also lands in the top 1% of large value funds for the one- and three-year periods, and in the top 2% for the five-year span that ended Oct. 31.

AVOIDING FINANCIALS

But how Forester Value found its way to the top of the heap isn't actually all that interesting. It doesn't involve dramatic moves into gold or buying puts. The fund simply bought a few winners and avoided potential bombs.

That shouldn't come as a great surprise since Tom Forester worked beside deep-value investor David Dreman for two years before striking out on his own in 1999. Like Dreman, Forester finds companies that are temporarily trading well below what he deems their intrinsic value. "Value investing is a bit like buying a summer home in winter," he says. He spreads his bets among a variety of sectors and searches for beaten-up names, since they have much less downside risk.

But, Forester says, that principle can only be applied so far. Financials traditionally trade below the overall market multiple, and yet by 2005, their balance sheets started to look shaky.

In his quarterly newsletter to shareholders, Forester wrote, "You can see a bubble long before it bursts." That's why he sold most of his housing-related stocks in 2005, including banks with heavy mortgage exposure.

"You could see in 2004 and 2005 that home prices had gotten to 40% to 50% above the historical range," he says. "Since mortgages were held by highly leveraged entities, not only were they losing money for people holding them, but you were also losing by 10 times if you held one of these entities."

That led him to steer clear of mortgages and anything associated with them, such as banks and homebuilders. "That was very hard to do," he says. "Banks were my friends, usually."

On Jan. 1, Forester had just 5% of his portfolio in financials. But with the financial sector of the S&P 500 down 49% in 2008-making it the worst performing sector in the index-his interest is piqued. He's been judiciously dipping his toe into the sector and upped his weighting to 15% to 20%. "I may be a bit early still," he concedes. But today's prices are too tempting for a value investor to pass up.

THE DEALS

Forester is finding plenty of deals out there, but there's still a risk that the market hasn't hit bottom yet. "I don't see my job as eliminating risk, but I try to manage it," he says. "Instead of buying just one stock, I try to buy smaller pieces of several stocks, and I have more names now."

For example, in financials, "I'm going the insurance route," Forester says. High on the list is The Traveler's Companies, the insurance giant. "They don't have a lot of exposure to these toxic assets on their balance sheet," he says. The company did announce $116 million of losses related to bankruptcies for the third quarter, but for a $72 billion investment portfolio, that hardly registers.

The firm also missed earnings forecasts in the third quarter, but much of that was related to bigger than expected losses from hurricanes Ike and Gustav. The stock is down 23.5% in 2008 and now trades at a price-to-forward earnings ratio of 7.2, well below the market. "People are so afraid of what's on the balance sheet that they're running away from good companies," Forester says.

Even some bank stocks are worth buying now, he says. He is looking at U.S. Bancorp, still one of the most profitable banks around. It consistently manages a return on capital over 20%. Write-downs related to Fannie Mae and Freddie Mac cut into earnings, but the banking side is still performing well. Unlike other banks, it increased its loans by 2% in the third quarter. The stock has even attracted Berkshire Hathaway's Warren Buffett, and Forester, like so many investors, considers him a model investor.