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:
- Metlife (MET) - Insurance
- Hartford Financial (HIG) - Insurance
- Apolle Group (APOL) - Adult "re-education"
- Baxter International (BAX) - Healthcare
- Aflac (AFL) - Insurance
- Gilead Sciences (GILD) - Biotech/healthcare
- Research in Motion (RIMM) - Technology
- Newmont Mining (NEM) - Precious metals
- Prudential (PRU) - Insurance
- Berkshire Hathaway (BRK-A) - Insurance and others
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.
9 comments:
What I realized about Ken is that his avowed disinterest in macro was his strength for a long time, and now of course it's a huge weakness. I thought he was making a terrible mistake in buying the financials. Though I didn't think they would crash again so soon.
I think Ken frankly has no idea what to do.
Hi Gregor, good to see you - I have some readers who send me your stuff from time to time.
Yes, I thought he was in for a rough time based on what he was saying in spring to early summer 2008 (far too bullish on US)
Again my main beef is just a lack of using his shorting ability. Very few mutual funds allow it and he has the opportunity and did not use it much.
It is too soon to tell so I let's not put him in the Bill Miller camp but we'll see a year from now where things stand. As I look at his portfolio now I am scratching my head (again) at the direction.
I have started a small (fortunately) investment with him after the fund was down last March. His run-up until summer was nice, but since then I have been wondering. I feel the fund is moving more or less with the market if not underperforming it. I have no idea why he did not go more into gold and his choice of insurance. This is one of the times when I actually want to know what I own. Given his age I am not sure we will see the fund recover in time.
"Now his focus is on insurers."
Maybe it still is but there was a 21% insurance and 20% exposure to health care/biotechnology, and I would not doubt when we get our quarterlies the mix may be pretty even for CGMFX. I like his biotech/health care posturing and think it is now a "co-focused" fund, a necessity used to mitigate risk.
Health care is usually an early bull, but has found to be a decent refuge for many these days. Financials are the late bear stocks and when banks didn't fit the bill, he chose insurance, which must have seemed to him like a watered down less risky option.
5 of the top 100 Investor's Business Daily stocks this past weekend were holdings that showed Ken Heebner had in recent SEC reporting period. That leads me to infer that sector rotation may be slowing/idling and looking for a sector leader, but also that Ken Heebner had quite a large amount of them in his 3 month old quarterly report. They were Capella and DeVry two educations stocks, and Genzyme, Gilead, and Cephalon. His list may even have more in the top 100 since then. Sadly in a recession
As for the short exposure, he had 4 on, is there not a limit by the SEC as to the percentile amount he can implement?
What more would you have him do?
In a recession growth stock mutual fund portfolios are monolithic beasts. Managers cannot gain, they live quarter to quarter and shareholders want results, thus cash is kept to 1-2% and everything else is thrown into equities. They all buy roughly the same stocks at the same time in the same quantities, per the algo models that they pay so much money to.
I am hoping Dr. Hui will come out this week with another article where he reverse engineered CGMFX and can shed some light on the fund.
Perhaps last year's hedge fund incursion thoughts were based on an understanding what he was up against - he is unable to use almost all of the tools such as short selling, currency plays, options, leverage, and derivatives that they get to in their investing universe.
Thanks for the article.
There is no SEC limit Keith. A quick look at the first pages of the prospectus shows a nearly unlimited ability to do anything he wants :) As long as you disclose in prospectus you can do a lot of things in a mutual fund. The industry is staid so thats why people assume they are so limited. The only limitation is leverage really.
He even allows himself to currency trade - which again is way out of the norm for mutual funds.
(also he can buy debt if he chooses)
I'd take a read of his prospectus and compare it to say a typical growth fund and contrast and compare... Ken has a ton of latitude. I don't think there is a reason to defend or attack him; I think if you asked him he would say he was not up to par this year.
My point above was he indeed has FAR MORE flexibility than t99%+ of growth mutual funds, so he had more chance to offset part of this. So its ironic he was at the bottom of the category with that ability.
Still beating the category my a good amount due to great 2007. And I care more about long term records, versus most who flip in and out of funds based on trailing 6 months or 1 year. But anyone who got in, in 2008 is suffering and it will take a long while just to get back to even.
p.s. agree on healthcare; that and defense (govt revenue) were 2 areas I thought would do ok in 2009 ... he seems to have left defense completely.
I also disagree with the 1-2% cash situation but that is more of an industry thing; they find cash to be an evil thing. I do not.
I just re-read page 1 of the prospectus.
Thanks for enlightening me on my out of sight, out of mind complacency.
Let's hope he comes up with some deep hard facts if he is to ever use some of the "whole kit and caboodle" prospectus arsenal here, in the middle of a recession. He has just put two bad quarters behind him and investors complain enough when things go well.
The short story list usually comes out about 10 days after the SEC release, I will mail any off to you when I get my hard copy.
Just want to point out that CGMFX is down in excess of 61%, and that I agree with gregor. Not blaming him. I suspect he does better in a bull market and was blind-sided by the market drop. It appears to me that he has pieced together a 'safe' fund that is early cycle as noted above. I'm just not sure that financials will lead the way this time. Too much govt. intervention and too many style changes.
jegan
Does anyone know when CGMF will be having an investor conference call? I sure would like to have better visability on what Ken's invested in. Since he has the ability to move quickly why in the world did it take him so long to make a move before he lost over 60% of investors' money? Makes no sense.
Have they ever had a conference call? I don't recall mutual funds doing that sort of thing.
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