Sure, I'm ashamed!
But nothing can come between me and you, loyal reader. And that means I must admit to the truth, dirty as it may be.
I probably should have owned up a few months ago, when I first started feeling guilty. But hey -- you've got the confession even before my husband. (Not that he hasn't been suspicious: "Who is this guy?" and "We deserve better than this.")
Yes, it's true.
I fell for a fund!
I know, save the breathless, exclamation-point-pricked style for the likes of
But sometimes you really can love a fund too much. And I think I may be in danger of exactly that. You help me decide. (Check out the poll later in the column.)
Here's what happened.
At the end of 1997, our core portfolio was pretty much in place. But after ditching a loser, in part for tax purposes, there was room for another strong actively managed fund.
Enter Ken Heebner's
For years, I had been an admirer of
CGM Capital Development, which sports a long-term track record among the best in the business. For the past decade, an average annual return of 20% beats not only the market but nearly all its peers as well. And Heebner, a.k.a. "The Mad Bomber" on Wall Street for his rapid-fire trading style, is easy to like, too. In a world of blow-dried, TV-savvy fund gurus, his slightly rumpled appearance and plain talk are refreshing. Hey, I like eccentric types. What can I say?
His flagship fund had been closed to new investors for years, but there was a just-launched similar one available to investors interested in getting a piece of the action. Like Capital Development, CGM Focus featured a highly concentrated portfolio (usually about 20 stocks), but its small size allowed Heebner to search among smaller-caps, too. In addition, he had the option to short stocks. Given his long and illustrious record, I felt comfortable getting in, even though Focus had only a few months under its belt.
But not to put too blunt a point on it, as great as Heebner's numbers may be over the long haul, Focus has just plain stunk since I got in.
In 1998, it barely delivered a puny 4%, worse than nearly three-quarters of other mid-cap blend funds, according to
. So far this year, the fund is up about 2% to rank in the bottom fifth of the category. Past 12 months? Actually in negative territory, down 4%.
Now, don't get me wrong -- this isn't a huge surprise. I did my homework and knew from poring over risk measures that volatility, plenty of it, goes hand-in-hand with Heebner's style. He isn't afraid to make big sector bets, aggressively shifting back and forth depending on his economic forecast. (Talk about trading! Focus's turnover rate is 340%!) When he's right, he's really right, and when he's wrong -- well, you feel it.
No question, Heebner is no stranger to the bottom of the charts. But when he's been down for the count before, he always proved the naysayers wrong with stunning comebacks. In 1994, a whopping 23% loss put Capital Development almost dead last among comparable funds. Yet the very next year, it shot to the top with a 41% gain, one of a few handfuls of active funds to beat the market in 1995 and 1996.
Trouble is, I've seen a lot more downs than ups. As I checked Morningstar for Focus's quarterly returns, I didn't much like what I saw.
- Q2 1998: flat.
Q3 1998: -27%.
Q4 1998: 24%.
Q1 1999: -10%.
With such a concentrated portfolio, the fund can get hit hard when just one or two stocks take a tumble. According to the most current list of holdings (as of March 31), one of its biggest positions is
NCI Building Systems
, a manufacturer of metal products for nonresidential buildings. That stock lost a third of its value so far this year. Another,
, which develops franchises such as
, is down by half.
Now, I've argued in this column again and again that you have to give an investment some time. Don't pull the trigger the first time your fund (or you) sees red.
But I've been in CGM Focus for more than a year and a half, and I can't ignore its relative underperformance any longer, no matter how engaging Heebner is or how impressive his long-term record.
Trouble is, there's a catch. In the fourth quarter of last year, Focus dropped its minus sign and rocketed 24%. It happened again in the second quarter of this year, when Focus recorded a 20% return. A play on retail stocks seems to be paying off well. Shoe retailer
is a highflier, up 176% year-to-date. And
Ames Department Stores
charged ahead 44%.
Plus, I learned the hard way when I sold a
fund at what looked like the bottom (guess who zoomed to the top of the charts not long after), a smart fund manager doesn't turn dumb overnight. And unlike some of the folks starting Internet funds out there, Heebner is not an untested guy trying his hand at money management because it looks fun.
Perhaps this is the start of another comeback. Then again, it might be a brief breather before heading south again. But given the legendary volatility of Heebner's funds, I'm giving this one another quarter to find out.
I think even my husband will put up with that.
But what do you think?
What should Brenda do about CGM Focus?
Call it quits. The Mad Bomber took one dive too many.
Give it another chance. Heebner is known for his comebacks.
Thanks for all the email responding to the new "TheStreet.com" TV show. Be sure to tune in this weekend, when
does the stock drill,
Gary B. Smith
duke it out again and
is on the hot seat with his predictions. It all happens Saturday at 10 a.m. ET and Sunday at 1 p.m. ET on the
Fox News Channel
And join me Thursday, Aug. 5, at 9 p.m. ET on
online chat (Keyword: Sage).
Brenda Buttner's column, Under the Hood, appears Thursdays. At time of publication, Buttner owned shares of CGM Focus fund, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks or funds. While she cannot provide investment advice or recommendations, Buttner appreciates your feedback at