Bear Beater Image Credit: Forbes
Bear Beater Image Credit: Forbes

Bear Beater

Todd Ahlsten has a recipe for finding investments that hold up well in down markets. One of the ingredients is corporate virtue.

William Baldwin

There are stocks for daredevils, and there are stocks for nail biters. You’ll find the latter in the Parnassus Core Equity Fund.

Anyone who hasn’t given much thought to risk just got an awakening. After a bull market stretching out not quite a decade, stocks, as measured by the Vanguard Total Stock Market Fund, retreated 19.6% in the three months before Christmas. That may or may not be a foretaste of something much worse, but it’s worth noting that, so far in this century, there have been two crashes that cut stocks in half.

Short of fleeing to cash, which delivers a meager return, what can a nervous investor do? Seek out shares that suffer less damage than most in bear markets. Todd Ahlsten, lead manager of $15 billion Parnassus Core Equity since 2002, has a knack for identifying those.

Forbes rates U.S. equity funds separately for bull- and bear-market performance across three market cycles going back 16 years. Only 7 of them (out of 974) have managed to deliver market-beating results over the full period while earning A+ grades in down markets. Ahlsten’s fund is one of those 7.

What’s his recipe? Follow the rules and you will see why timid investors might like Linde and WD-40 but not and U.S. Steel.

First, Ahlsten asks, “How sturdy is the top line?” This is more a matter of judgment than numbers. “We are not a quant house,” he says. He wants to see predictable revenues. L

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