Heebner's Fund Clients Pay More to Lose

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Investors who bought the curve-breaking CGM Focus Fund(CGMFX Quote) thinking Ken Heebner would hit home runs forever have watched the legendary mutual fund manager strike out with disturbing regularity in recent quarters.

The Focus Fund is down 5.3% this year even as the S&P 500 index gained 1.7%. Investors have seen 57% of its value evaporate in the past 12 months, exceeding the S&P 500's 35% decline. That's quite a reversal from its 80% leap in 2007, when the index rose only 5.5%.

Adding to investors' pain is the $61.1 million in management fees they shouldered last year even as their wealth shrank. These costs totaled 1.36% of fund assets, with short sales accounting for 0.39%. That's more than double the 0.64% average expense ratio charged by the no-load mutual funds we track with at least $1 billion in assets.

Ironically, the expense ratio for last year's dismal showing was up from 1.27% in 2007, when the Focus Fund buried the competition in almost every performance category. Heebner's office didn't immediately respond to a request for comment.

During some years, CGM boosted the performance of the Focus Fund and its CGM Mutual Fund(LOMMX Quote) by reducing management fees. However, it didn't limit fees during the Focus Fund's disastrous 2008 slide.

The fund's turnover rate last year was 504%. The average mutual fund with more than $1 billion in assets has a turnover rate of 67%.

The Focus Fund established its lead over the market with respective gains of 54% and 48% in 2000 and 2001, which were bear market years for stocks. Flashes of brilliance have helped the fund return 9.3% a year, on average, for the past five years, compared with the S&P 500's annual loss of 1.6%. Despite the recent lapse, holders of the fund have enjoyed average annual gains of 15% during the past 10 years, beating the index's 2.3% decline.