Wednesday, February 18, 2009

Ken Heebner's Fourth Quarter 2008 Moves - CGM Focus (CGMFX) & Others

Ken Heebner of CGM Funds is one of the more (most?!) aggressive mutual fund managers, and had one of the longest winning streaks up through summer of 2008. [May 28: Ken Heebner - America's Hottest Investor] He is one of the few mutual fund managers who has the ability to short (like a hedge fund) and in fact has launched a hedge fund in latter 2008 [Sep 10: Ken Heebner to Launch Hedge Fund]

While Heebner has had a quite awful run of late - down 50% in the past year; I still like to see what some of the guys with the best long term records are doing. My main criticism of Heebner the past year, judging from videos and stories written has been turning sour on the economy too late, and not using the ability to short to hedge his portfolio. After staying at the commodities trough too long (of which I also was guilty) he jumped into financials in a big way per his 3rd quarter filing [Nov 14, 2008: Ken Heebner Moves into Financials Big Time] Three of his top four holdings were Wells Fargo (WFC), Citigroup (C), and Bank of America (BAC)

I don't like the Citigroup (C) purchase myself but it is what it is - he effectively put 15% of his holdings into 3 of the 'Chosen 9' [Oct 13: US Reveals the Chosen 9] Obviously he has mostly abandoned commodities (who hasn't, the stocks go down 9 out of every 10 days!) :) on a relative basis, but showing his turnover, 4 of his top 5 positions from June 30th were completely gone by Sept 30th.

If you have been following the market with even 1 eye you can see that move was again in error, but one positive thing about Heebner is if he changes his mind he will go whole turkey. So in the latest report those 3 positions are now GONE. Now his focus seems to be insurers, which have struggled since Jan 1 - but in theory if the government treats them as banks and takes some of their bad assets out and onto the tax payers shoulders; then you "win". Here is a major index for insurers

So let's see where he is moving to nowadays; keep in mind this is mid February and the filing is as of Dec 31st, 2008. As the last 2 quarters have shown by the time we get the filing he could have already sold out of some of these positions completely - he is just that active. (note the below data is for all of CGM Funds, not just CGM Focus (CGMFX) although that fund is the dominant one in terms of assets under management)

Biggest Additions in the Quarter:
  1. Metlife (MET) - Insurance
  2. Hartford Financial (HIG) - Insurance
  3. Apolle Group (APOL) - Adult "re-education"
  4. Baxter International (BAX) - Healthcare
  5. Aflac (AFL) - Insurance
  6. Gilead Sciences (GILD) - Biotech/healthcare
  7. Research in Motion (RIMM) - Technology
  8. Newmont Mining (NEM) - Precious metals
  9. Prudential (PRU) - Insurance
  10. Berkshire Hathaway (BRK-A) - Insurance and others
If we assume he kept these for the past 6 weeks, Newmont Mining has an excellent run (in lockstep with gold), Research in Motion had an excellent run until a week ago when it updated its guidance and the stock has been in freefall since (it will be interesting to see if he hung on), healthcare has been one of the better places to hide, and adult education has been one of the "thesis" areas in the market. The rest is insurance, insurance, insurance.

While I'm not as interested in what he has sold out - the above mentioned names in financials have been let go along with his focus in REITs (I assume for his CGM Realty [CGMRX] fund). Other interesting names purged were railroad Burlington Northern (BNI), defense players Northrop Grumman (NOC), Lockheed Martin (LMT) & Raytheon (RTN), Chinese oil company CNOOC (CEO), tech company Cisco (CSCO), fertilizer companies Mosaic (MOS) & Potash (POT), seed company Monsanto (MON), retailers Kohl's (KSS) & JCPenney (JCP), apparel maker Nike (NKE) and perhaps most shocking Brazilian energy company Petrobras (PBR) - which if you listened to him wax poetically about you'd think he would be holding for 30 years.

Apparently Heebner does not buy the "Chinese will save us" thesis based on these moves.

This is an interesting switcheroo and aside from a narrow rally in Insurance I don't see how exactly this will outperform the market. Still trying to dig up any short positions without luck thus far.

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