Kenneth Heebner ranked as America’s No. 1 stock picker before losing his touch and most of his main fund’s assets. The 71-year-old manager, at the bottom of his peer group for the fourth year in five, hasn’t lost his swagger.
Heebner, whose CGM Focus Fund (CGMFX) topped all diversified U.S. stock mutual funds in the decade through 2007, lost an annual average of 6.3 percent in the five years through June 26, trailing 96 percent of the same group, according to data compiled by Bloomberg. CGM Focus has been in the bottom 6 percent of the large-cap growth category every year since 2008, with the exception of 2010, when it beat 66 percent of peers.
“Most people think this is the worst time in the world to be optimistic, but my portfolio is positioned for strength in the U.S.,” Heebner said in a telephone interview from his Boston office. “I am functioning in a contrarian mode.”
With the U.S. economy expanding an average annual 2.4 percent per quarter since the recession ended in June 2009, the weakest recovery in six decades, Heebner acknowledges being too upbeat about the prospects for stocks such as Citigroup Inc. (NYSE:C) and Ford Motor Co. (NYSE:F) that depended on a stronger economy. The fund’s assets have plunged to $1.9 billion from the June 2008 peak of $10.3 billion.
A star of the early 1980s through the mid-’90s, Heebner has bounced back before, after missing out on the 1998-99 technology-stock surge. This time, with central banks across the world running out of tools to revive their economies and governments forced to reduce spending, some analysts are questioning how long you can be contrarian before you’re wrong.
‘Extreme Performance’“It is difficult to have any conviction he will turn it around,” Kevin McDevitt, a Morningstar Inc. (MORN) analyst, said in a telephone interview. Heebner works largely on his own, a labor- intensive process that may be hard to keep up, according to McDevitt.
Heebner considers himself a spotter of investment themes as well as a stock picker. The manager had 21 percent of his fund in banks and 12 percent in airlines at the end of the first quarter, according to a regulatory filing. Heebner owned 4.3 million shares of Citigroup with a value of $156 million and 14.1 million shares of Delta Air Lines Inc. valued at $140 million as of March 31.
“With a strategy that bold it is a given you are going to have some extreme performance,” Russel Kinnel, director of mutual fund research at Chicago-based Morningstar, said in a phone interview.
Heebner said in the interview he still loves what he is does and has no intention of retiring. He studies reports on 25 industries, looking for trends on which he can capitalize. For much of the past decade, his instincts led him to the right spots.
‘My Hero’In 2000 and 2001, he profited by betting against tech stocks as the Nasdaq 100 Index crashed. He began buying homebuilders such as Miami-based Lennar Corp. (NYSE:LEN), ahead of the multiyear run-up in home prices.
By the start of 2005, seven months before homebuilding stocks peaked, he sold them and moved into energy and commodity companies in time to catch the boom there.
“I want to be more like Ken Heebner -- he’s my hero,” William Danoff, manager of the $79.5 billion Fidelity Contrafund (FCNTX), said in a September 2008 interview with Kiplinger’s Personal Finance magazine in which he described his rival’s performance as “staggering.”
By then, Heebner’s slide had begun. In 2008, CGM Focus lost 48 percent as the global recession hurt commodity prices and a move into beaten-down financial stocks proved premature. Heebner sold his insurance stocks in the first quarter of 2009 at a loss, he wrote in a regulatory filing, which caused him to miss the nascent rally in financial companies.