According to an article on Bloomberg today, Ken Heebner hopes to launch his first hedge fund raising $5 billion. This got our contrary juices flowing with several bells ringing:
- Hot portfolio manager becomes hot commodity among the mainstream financial media. (not the least bit influenced by all the money his firm spends on fencing ads!)
- Assets in his flagship CGM Focus Fund more than triple from $2.9 billion to $10.4 billion from June 30, 2007 to June 30, 2008, coinciding with a boom in commodity-related stocks. (Heebner runs a concentrated portfolio with 93.5% in such stocks as of March 31.)
- After nearly 4 decades in the business, he decides to raise $5 billion in a hedge fund…
- …despite the fact that his fund is down 29% in the first 10 weeks of Q3.
- The Bloomberg reporter is very blasé about this recent implosion.
- And investors are unfazed, apparently buying the dip, to the tune of $700 million in inflows during Q3. (CGM Focus Fund should be down to $7.4 billion with the 29% loss, yet is reported at $8.1 billion in assets.)
My comment: You just can’t script this much better. After a 7 year run, the commodity bear is slightly more than two months old… and by all appearances has much further to run. There is just far too much complacency.
Fund manager Ken Heebner, who Fortune deified one month ago (we blogged about it here), appears to have succumbed to the magazine cover curse. His CGM Focus Fund – packed with commodity, cyclical (steel), and emerging markets stocks – is down 11.55% for the first five trading days in July. The S&P 500 is -0.49% over the same period.
Ken Heebner graces the cover of the latest Fortune with the title, “America’s Hottest Investor.” While we won’t begrudge Heebner the honor (his CGM Focus Fund returned 24% per annum over the past 10 years vs. 4% for the S&P 500), we’ll simply point out that such fanfaronade often tempts the investment gods.
Predictably, Heebner is making a concentrated bet on – drumroll, please – commodities. In fact, as of March 31, 71.8% of Focus’s assets were invested in commodity-related stocks:
- Aluminum – 5.9%
- Copper – 9.9%
- Fertilizer – 9.7%
- Food – 4.7%
- Oil drilling & oilfield services – 7.5%
- Oil producers – 10.8%
- Steel – 23.3%
If that weren’t enough, another 21.7% is invested in emerging markets:
- Brazilian banks – 12.4%
- Foreign telecoms – 9.3%
Ken Heebner is known for rapid trading (387% annual turnover) and pulling the plug quickly if he senses the investment winds changing. In any event, a 93.5% of portfolio bet that gains the adoration of a popular financial publication strikes us as some sort of bell-ringing event.
Addendum: The banner at the top of the November 28, 2006 issue of Fortune read “The greatest money manager of our time.” That distinction went to none other than Bill Miller, whose Legg Mason Value Trust underperformed the S&P 500 by 7.60% in 2006, 12.21% in 2007, and 12.81% so far in 2008.