But then there are those that are managed both for their upside potential and their downside staying power. In this article, Financial Advisor focuses on five funds that are meant to shine in all sorts of different market weather.

When Financial Advisor first interviewed Bruce Berkowitz back in 2004, the manager of the $190 million Fairholme Fund told us that he and his fund co-managers "are always killing ideas by talking about what can go wrong and how we could lose money. We configure the portfolio toward companies that will do well in difficult environments."

With fund assets now exceeding $9.5 billion, Berkowitz is working with a bigger pot and still focused on minimizing losses, a strategy that has helped the fund gain 240% since its inception in December 1999 as the S&P 500 has stayed essentially flat. This year, as the index has sunk, Fairholme has managed to stay slightly above water by avoiding most banks, brokerage firms and other highly leveraged financial companies and favoring cash-rich companies with healthy balance sheets, above-average returns on capital and stock prices that reflect a discount to the firm's calculation of the companies' intrinsic values.

He also takes profits when he thinks a stock may be getting short on running room. During the first half of the year, he halved a significant position in Canadian Natural Resources as high oil and gas prices made it likely that supply would increase and demand would slow. He sliced the fund's position in longtime holding Berkshire Hathaway from about 20% of assets at the end of last year to a little more than 10% now. "I still have a lot of respect for Warren Buffett, so I take him at his word when he says he doesn't believe the stock can beat the S&P 500 by more than two or three percentage points going forward," says Berkowitz.

He has used some of the proceeds from those sales to buy health-care and pharmaceutical stocks. Rising costs and slowing growth prompted many investors to flee these names earlier in the year, but Berkowitz sees them as fallen angels with sound business strategies and large free cash flows. Although fund holding Pfizer faces patent expiration for its marquee drug Lipitor in three years, the company still has lots of products in the pipeline.

Once drugs go off patent, Pfizer prices them to compete with generic brands, creating ongoing revenue. WellPoint, another health-care purchase, is a dominant HMO that "has proven it can combat rising health-care costs and make a profit doing it."

You could argue that the Vice Fund is a cynic's answer to socially responsible investing, and maybe you'd be right. But you would also be right to contend that it is a large-cap blend fund with a low correlation to the S&P 500 index and holds a variety of recession-resistant companies with defensive characteristics.

The fund invests in four "sin stock" industries-alcohol, tobacco, aerospace/
defense and gaming-that some might consider politically incorrect. But manager Charles Norton, who doesn't smoke or gamble, says Vice's goal is not to make a political statement but to invest in stocks that are defensive in nature and can prosper in a variety of economic environments.

That thesis has worked well amid bear markets in most of these sectors, including tobacco. Philip Morris International, the fund's largest holding at 11% of assets, has seen increasing global sales this year and has overcome concerns about its litigation risk by enjoying favorable currency exchange rates and growing demand from emerging markets. The stock was recently trading near its 52-week high. Defense contractor holdings such as Lockheed Martin whose fortunes are tied to budgetary cycles rather than fluctuations in the economy have also held up well.

To the fund's detriment, gambling is one vice that people have apparently been willing to let go. With less discretionary cash to burn, tourists have been staying home or bypassing Las Vegas for less draining destinations, leaving casino operators to face declining cash flows, high levels of debt and a crushing hangover. What has happened in Vegas unfortunately hasn't stayed in Vegas but has spread to Wall Street, and several of the Vice Fund's holdings, including MGM Mirage and Las Vegas Sands Corp., have lost more than half their value over the last year. Norton says that while he wasn't surprised by the downturn in gaming stocks, he did not anticipate its severity. While he doesn't see a turnaround until 2010, he is making lemonade from lemons by short selling.

Thornburg Investment Income Builder
With a yield of more than 5% in its stock and bond portfolio, Thornburg Investment Income Builder offers a reminder that income is still a part of the total return equation. "This fund is about income first and capital appreciation second," says Brian McMahon, co-portfolio manager.

In addition to foreign and domestic bonds, this global fund invests in the stocks of cash-generating businesses that share their good fortunes with shareholders by giving them dividends (besides plowing money back into operations). The dividends paid to shareholders by the fund grew at a rate of 17.5% for the year ended June 2008, an outcome that surprised even McMahon considering the concerns about the economy and inflation.

Bonds typically make up between 15% and 30% of fund assets, depending on comparative yields and opportunities in both the stock and bond markets (at the end of August, bonds accounted for 22% of the fund). Recently, the managers have been picking up securities a few rungs down the credit ladder that are sporting yields to maturity in the 8% area. "We probably would have shown better numbers being in Treasurys over the last couple of years," admits McMahon. "But as the dust settles over the next two to four years, I think it will be a different story."

The fund also remains anchored in high-yielding stocks such as Eni SpA, an Italian integrated oil and gas company that is among Europe's largest natural gas producers. The company has a history of returning capital to shareholders by paying an attractive dividend, as well as repurchasing shares, and it currently yields more than 6%. While a hefty stake in telecoms has hurt returns this year, McMahon continues to favor their generous dividends, resistance to inflation and relatively solid capital structures.

FPA Perennial
Small and midcap stocks have been holding up better than large caps since the bear market began almost a year ago. "It's a mystery why small caps have done better than large caps," says Eric Ende, co-manager of FPA Perennial fund, which invests in both small and midsize names. "Usually,investors tend to favor larger companies in a bear market."

The FPA Perennial fund tends to have better comparative performance in years that are bearish or up slightly, but underperforms in years of great ebullience. As of mid-September, it was down only about 7% from the market peak in October 2007, performing better than the S&P 500 index, which dropped 18% over the same period, and the Russell 2500, which declined 13%.

To keep the downside in check and upside in tune, Ende focuses on high quality companies with limited business risk that have liquid, unleveraged balance sheets. The fund also seeks companies with a high return on assets and equity, understandable business plans and consistent management. He typically holds on to stocks for several years, but won't hesitate to sell when a company's stock price reflects or exceeds the intrinsic worth of the business.

Small companies with lots of overseas business are especially interesting to him. One of these is WABCO, a recent addition to the portfolio, which was spun out of American Standard a little over a year ago. WABCO, a manufacturer of advanced components for commercial vehicles, derives 75% of its revenues from Europe.

Delafield Fund
You really have to know what you're doing to specialize in mining beaten-up turnaround situation stocks, and Delafield fund managers Dennis Delafield and Vincent Sellecchia apparently do. The 15-year-old midcap value fund tends to hold up well in volatile markets or in those that are up slightly, though it may lag a bit when markets grow rapidly. At the end of the second quarter, the fund had about 20% of its assets in cash, which it uses as a shelter when compelling ideas are scarce.

Sellecchia says recent market weakness has presented the managers with opportunities to deploy some of that cash war chest into beaten-down stocks of sound companies with good management at extraordinarily attractive valuations. One recent buy, Kaiser Aluminum Corporation, emerged from bankruptcy roughly two years ago with a clean balance sheet, a large tax-loss carryforward and a strong position serving the aerospace market. While financial distress and production delays in the airline industries caused the stock price to plunge, a large part of the company already has lucrative contracts in place and its production is near capacity.

The fund also recently purchased diversified manufacturer Carlisle Companies. Rising costs and the cyclicality of Carlisle's business have caused the company's earnings to decline and its shares to drop by more than 40% from their 52-week high. But Sellecchia believes sound management, price increases and strategic cash flow allocation should create value for the company in an improved economic environment.

"Things aren't going to get better for a while," he cautions. "Consumers are stretched, economic growth is slowing overseas, and we're still wringing out some of the excesses in the economy. It's going to take a while for things to play out."