If only I had known the name Ken Heebner back in 1998, I would be a wealthier man today.
His CGM Focus (CGMFX) and CGM Realty (CGMRX) are two of the 10 best funds of the past 10 years. Each has absolutely destroyed the market over the past decade.
"Destroy" might be putting it lightly. Consider:
|
10-Year Annualized Return |
Value of $1,000 |
|
|---|---|---|
|
CGM Focus |
24.3% |
$8,804 |
|
CGM Realty |
21.9% |
$7,245 |
|
S&P 500 |
3.8% |
$1,452 |
|
MSCI EAFE Index |
4.6% |
$1,567 |
|
MSCI Emerging Markets Index |
12.4% |
$3,219 |
That's right. Both funds even blew the emerging markets out of the water by a wide margin.
How'd he do it?
Heebner's CGM Focus fund focuses (hence the name) on just a handful of stocks (25 at present), and he isn't afraid of regularly shuffling the lineup. The fund's turnover ratio stands at a staggering 384%, which means that the typical holding only stays in the fund for about three months.
The point, then, is to catch stocks with a lot of momentum early in their cycle and ride them higher. In 2007, for example, Heebner scored big returns on fertilizer companies Mosaic
And that was the strategy all along, according to the fund's annual report:
CGM Focus Fund was fully invested throughout the year, reflecting our belief in continued global economic growth. The Fund focused on industries that profited from the increasing consumption of commodities in emerging economies including China, India, Brazil, and the Middle Eastern countries.
Heebner seems to remain bullish on materials stocks, as Mosaic, Petrobras, and U.S. Steel
Of course, as rapidly as Heebner trades in and out of stocks, things might have changed since holdings were last reported as of March 31.
You knew it was coming
If he's not the best investor this decade, Heebner has earned a position on the first team. In fact, a recent Fortune profile called him "America's hottest investor." But after all that fun talk about turning $1,000 into $8,000 and crushing the market, it's worth remembering that past performance is no guarantee of future results.
Heebner and the CGM Focus and Realty funds have a strong track record and could continue to outperform the market for the next decade, but investors shouldn't just dive in.
For one, future returns for both of Heebner's funds are extremely reliant on one or two industries -- one-stop shops for diversification they are not. For example, the Focus fund stores 77% of its assets in industrial materials and energy, while the Realty fund puts about 69% of its assets in financial services companies. An unexpected secular shift in these industries could really put a crimp in returns.
Moreover, all the trading Heebner does to keep the funds on top of market trends could generate a hefty tax bill for investors, so keep these CGM funds in a tax-deferred account like an IRA to avoid tax headaches.
Foolish final thoughts
All that said, Heebner's funds are exemplary in many respects: they have a long-tenured manager with a great track record, they do not charge load fees, and their expense ratios are very reasonable. They are best suited for aggressive investors with a long time horizon who can handle volatility. If that sounds like you, or if you'd like to read about other top mutual funds, you can check out our lineup of picks at Motley Fool Champion Funds.
On average, Champion Funds picks are outperforming the market by more than 20 percentage points -- no doubt boosted by CGM Focus and CGM Realty, both of which are active recommendations. To learn more about a free trial, click here.
Todd Wenning recommends the band Black Stone Cherry to any fan of Southern rock. He does not own shares of any company or fund mentioned. Petrobras is a Motley Fool Income Investor recommendation. The Fool's disclosure policy prefers Eagle Eye Cherry.
