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Ken Heebner Top Holdings: Ford Motor Company, FreeportMcMoRan Copper & Gold, Goldman Sachs Group, Teck Resources Limited, CLIFFS NATURAL RESOURCES, FedEx Corp.

May 15, 2010 | About:
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guruek

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Investing in Ken Heebner’s funds in the last decade has been a bit tricky. His CGM Focus Fund – is ranked as the “Best Stock Fund of the Decade” by Wall Street Journal at the end of 2009. The Fund rose more than 18% annually through the end of 2009 for the past 10 years. But you can only enjoy the return if you put your money into the Fund at the beginning of the 10 years and never moved in or out, riding out the peaks and troughs regardless what is ahead. If you do what an average investor have done, namely taking money out when the Fund suffered a terrible loss, and putting money in when the Fund had a terrific run, you would havelost 11% annually.

When coming to timing the market, individuals on average always lose, always out of sync.

This is the CGM Focus Fund’s ten year performance number.

Performance of CGM Focus Fund

YearReturn (%)S&P500 (%)Excess Gain (%)
200910.526.5-16.0
2008-48.2-37-11.2
2007805.6174.4
20061515.79-0.8
200525.24.9120.3
200412.4120.4
200366.528.737.8
2002-17.8-22.14.3
200147.4-11.959.3
200053.9-9.163.0
19998.521-12.5


It seems the fund manager has also been out sync of the general market for the past couple of years, especially for the year of 2009. In the annual report of CGM Focus Fund, Heebner provided the following reflection:


CGM Focus Fund entered 2009 with substantial holdings in insurance and economically defensive stocks. The insurance stocks were sold with major losses in the first quarter of the year. In fact, losses in investments in the insurance companies The Hartford Financial Service Group, Inc., MetLife, Inc., AFLAC Incorporated and Prudential Financial, Inc. were the Fund’s largest losses in 2009 and collectively were the most significant factor in the Fund’s underperformance for the year.

The economically defensive holdings were replaced with stocks that we believed would benefit from economic recovery as the year progressed, but delay in executing these transactions after the market low in early March diminished the Fund’s overall performance. Ford Motor Company delivered the largest gain for the Fund; other major contributors to performance were The Goldman Sachs Group, Inc., Freeport- McMoRan Copper & Gold Inc., Google Inc. and Amazon.com, Inc.


Economy and Market Outlook

Heebner provided the following Economy and Market Outlook in the annual report of CGM Focus Fund:


Given conflicting economic signals throughout the fall, the equity market traded within a narrow range from mid November through most of December though the S&P 500 Index did end the year at a new recovery high. We believe economic news will continue to improve with slow and lagging indicators picking up pace as we move into 2010. We also think the global economy seems similarly positioned to ours with China and India leading the upward charge. A cheaper dollar is providing an extra boost to the U.S. economy through exports to other countries. Admittedly, unemployment remains significant, which tempers prospects for a more robust recovery. At the same time, a high unemployment rate allows for additional growth in the economy before inflationary forces come into play. We believe such an environment is good for interest rates, business expansion and corporate profits. Add to the mix, ten year U.S. Treasury bond rates at 3.8% and 30-year yields at 4.6% on December 31 and conditions could be conducive to higher equity prices.


Sector Allocation

Heebner trades rather frequently, but he takes concentrated bets. Here is his sector allocation for 1Q10. He cut back on technology and financials, and he increased holdings in basic materials. He thinks the basic materials will benefit the most from economic expansion in India-and-China’s of the world:

Industry2009-12-312010-03-31
Technology20.3%10.7%
Financials30.1%26.8%
Consumer Services12%11.5%
Health Care1.1%%
Consumer Goods10.1%11.5%
Industrials5.7%8%
Basic Materials18.7%25%


Top Holdings

Not much have changed in his line-up of top holdings in the last quarter:

No. 1: Ford Motor Company (F), Weightings: 10.84% - 59,317,000 Shares

Ford Motor Company produces cars and trucks. The company and its subsidiaries also engage in other businesses, including manufacturing automotive components and systems and financing and renting vehicles and equipment. Ford Motor Company has a market cap of $40.79 billion; its shares were traded at around $12.11 with a P/E ratio of 12.9 and P/S ratio of 0.3.

Heebner sold a small stake in this stock in 1Q10.

No. 2: FreeportMcMoRan Copper & Gold Inc. (FCX), Weightings: 7.15% - 5,886,000 Shares

Freeport-McMoRan is engaged in mineral exploration and development, mining and milling of copper, gold, and silver in Indonesia, and the smelting and refining of copper concentrates in Spain and Indonesia. Freeportmcmoran Copper & Gold Inc. has a market cap of $30.02 billion; its shares were traded at around $69.72 with a P/E ratio of 9 and P/S ratio of 2. The dividend yield of Freeportmcmoran Copper & Gold Inc. stocks is 0.8%.

Heebner sold a small stake in this stock in 1Q10.

No. 3: Goldman Sachs Group Inc. The (GS), Weightings: 6.55% - 2,641,100 Shares

Goldman Sachs is a global investment banking and securities firm, providing a full range of investing, advisory and financing services worldwide to a substantial and diversified client base, which includes corporations, financial institutions, governments, and high net worth individuals. Goldman Sachs Group Inc. The has a market cap of $75.46 billion; its shares were traded at around $143.23 with a P/E ratio of 5.9 and P/S ratio of 1.6. The dividend yield of Goldman Sachs Group Inc. The stocks is 1%. Goldman Sachs Group Inc. The had an annual average earning growth of 12.7% over the past 10 years.

Heebner sold a small stake in this stock in 1Q10.

No. 4: Teck Resources Limited (TCK), Weightings: 5.84% - 9,225,000 Shares

Teck Resources Limited, formerly Teck Cominco Limited, is a diversified resource company committed to responsible mining and mineral development with major business units focused on copper, metallurgical coal, zinc, gold and energy. Teck Cominco Ltd. has a market cap of $19.82 billion; its shares were traded at around $34.17 with a P/E ratio of 20.2 and P/S ratio of 2.8.

Heebner sold a small stake in this stock in 1Q10.

No. 5: CLIFFS NATURAL RESOURCES, INC. (CLF), Weightings: 5.19% - 5,031,700 Shares

CLIFFS NATURAL RESOURCES INC, formerly Cleveland-Cliffs Inc, is an international mining company, a producer of iron ore pellets in North America and a supplier of metallurgical coal to the global steelmaking industry. Cliffs Natural Resources, Inc. has a market cap of $7.31 billion; its shares were traded at around $53.98 with a P/E ratio of 29.6 and P/S ratio of 3. The dividend yield of Cliffs Natural Resources, Inc. stocks is 0.6%.

This is a new material stock that Heebner bought during 1Q10.

No. 6: FedEx Corp. (FDX), Weightings: 4.7% - 3,460,000 Shares[/b]

FedEx Corporation is a global transportation and logistics enterprise that offers customers a one-stop source for global shipping, logistics and supply chain solutions. Fedex Corp. has a market cap of $26.91 billion; its shares were traded at around $85.91 with a P/E ratio of 27.8 and P/S ratio of 0.8. The dividend yield of Fedex Corp. stocks is 0.5%. Fedex Corp. had an annual average earning growth of 3.9% over the past 10 years.

Heebner sold a small stake in this stock in 1Q10.

Conclusion

Heebner noticeably added position in basic material stock. Hopefully he will be in sync with the market again and deliver some above average returns from now on.

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