Many seasoned investors predict a market correction before year-end. With a 10 percent downdraft likely by the end of the summer, it’s time to position your portfolio accordingly. One strategy is to invest with managers who have proven themselves in down markets.

Todd Ahlsten, manager of Parnassus Equity Income (PRBLX), is no stranger to adversity. Just four months after Ahlsten assumed the reins of the fund in 2001, terrorists struck New York and Washington, DC, sending the markets into a tailspin. But in a year in which the S&P 500 lost almost 12 percent on a total return basis and the average large-cap fund gave up 13.5 percent, Parnassus Equity Income generated a positive 9.9 percent total return. As the S&P continued to struggle in 2002, losing 22.3 percent, the fund retreated just 3.7 percent and ranked at the top of its large value category. Ahlsten turned in a similarly strong performance in 2008, another year of crisis. Although the fund lost 22.9 percent that year, it still handily outperformed the S&P 500, which lost more than a third of its value.

On a trailing three-year basis the fund ranks in the top 4 percent of its category. Parnassus Equity Income is top dog over a 10-year basis; the fund leads the large-cap pack with a top 1 percent ranking.

That success has largely been driven by Ahlsten’s four-pronged defensive strategy. Taking broad macroeconomic factors into account, he and his team look for companies in secular growth industries that sell goods or services that will be increasingly relevant in consumers’ lives over the next three to five years. On top of that, those companies must be leaders in their industries and enjoy a high degree of pricing power. From there, Ahlsten wants to invest in companies with solid management teams that have been time tested, are good stewards of investors’ resources and have proven that they conduct themselves in an ethical manner.

Finally, valuation matters. While Parnassus Equity Income is hardly a deep value fund, Ahlsten is still scrupulous about not overpaying for assets and only buys into companies that offer at least a 10 percent long-term rate of return.

That investment strategy has led Alsten to significantly overweight economically sensitive sectors such as energy, industrials and technology in the portfolio.

Ahlsten’s technology exposure includes two basic types of plays: companies such as Google (NSDQ: GOOG) and Qualcomm (NSDQ: QCOM) that are active in mobile and wireless applications markets; and IT infrastructure and consulting names such as Cisco Systems (NSDQ: CSCO) and Accenture (NYSE: ACN). Technology companies are also benefiting from a loosening of corporate purse strings; after holding back on technology infrastructure spending during the recession, most companies are in the thick of an IT purchasing cycle.

In the energy patch Ahlsten favors natural gas plays over oil. With President Obama having set an ambitious goal of slashing oil imports by a third over the next 15 years, and nuclear energy facing stiff challenges after the disaster in Japan, demand for natural gas will likely grow faster than available supply. Parnassus’s holdings such as Energen Corp (NYSE: EGN) and Plains Exploration & Production (NYSE: PXP) are well-established, low-cost producers of natural gas with large proven and probable reserves. Energen also runs a sizable natural gas utility.

Perhaps one of the most impressive aspects of Parnassus Equity Income’s performance are the constraints under which Ahlsten works. While Parnassus Investments can’t be characterized as an activist firm it does use socially responsible investment (SRI) criteria. In the case of Parnassus Equity Income, that means avoiding firms that derive significant sales from alcohol, tobacco, gambling and nuclear power or those with poor environmental records. Based on those criteria Ahlsten works with a fairly small universe of potential investments. On top of that, at least 75 percent of the fund’s portfolio must be made up of dividend-paying companies.

As a result of those well-defined investment criteria, the fund’s portfolio tends to be focused, currently comprising just 42 positions. Nonetheless, the portfolio is fairly well diversified with no single position accounting for more than 5.5 percent of assets. The fund also carries a reasonable expense ratio of just 0.99 percent, middling for large-cap blend funds. Ahlsten also has a substantial investment of his own in the fund, aligning his interests squarely with those of shareholders.

With solid returns and a just over 1 percent yield—about half of the yield of the S&P 500—the fund is an excellent core holding for growth and income investors with a moderate risk tolerance.