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Ken Heebner's CGM Mutual Fund 3rd-Quarter Letter

Discussion of markets and performance

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Nov 29, 2021
  • CGM Mutual Fund increased 0.5% during the third quarter of 2021
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To Our Shareholders:

CGM Mutual Fund increased 0.5% during the third quarter of 2021 compared to a return of 0.6% for the Standard and Poor’s 500 Index (S&P 500 Index) and 0.0% for the ICE BofAML U.S. Corporate, Government and Mortgage Index*. For the first nine months of the year, CGM Mutual Fund increased 23.4%, the S&P 500 Index returned 15.9% and the ICE BofAML U.S. Corporate, Government and Mortgage Index returned -1.7%.

Strong market performance through the first half of the year continued into the third quarter. Stocks surged in early July as improving employment numbers reflected a U.S. economy continuing to strengthen. The Labor Department reported the addition of 850,000 new jobs in June along with rising hourly wages. Growth stocks led the way as they tend to outperform the market when bond yields are low. However, by the middle of the month inflation concerns began to weigh on investors. Growing consumer demand pushed the Consumer Price Index up 5.4% for the twelve months ended in June which represented the largest inflationary increase in thirteen years and was driven by recoveries in the travel, entertainment and recreation industries along with federal pandemic aid dollars filtering into the economy. The Labor Department’s Producer Price Index, which measures the change in prices charged by suppliers to businesses, recorded its largest gain ever in June jumping 7.3% for the trailing twelve months. The Commerce Department reported retail sales, which had declined earlier in the spring, crept up 0.6% for the month of June as the economy continued to gradually reopen. Stocks ultimately rebounded on news that second quarter GDP surged 6.7%, pushing the U.S. economy above its size before the onset of the pandemic.

The market remained in record high territory through much of August despite a slump in consumer demand. Increasing numbers of COVID-19 Delta variant cases and the threat of expanded or reintroduced travel restrictions in some parts of the U.S. dampened social activity and briefly depressed retailers and other cyclical stocks. Minutes of the July Federal Reserve Board meeting disclosed a growing concern that inflation could be more persistent and stronger than previously expected and a willingness by the Fed to begin the process of reversing its easy money policies before the end of the year by scaling back its monthly bond purchases. Stocks dropped in response to the news but soon rebounded, boosted by the FDA’s final approval of Pfizer’s (

PFE, Financial) COVID-19 vaccine. In late August Fed Chairman Jerome Powell confirmed the Fed’s plans to begin tapering its bond purchases by year-end but also cautioned that the Fed should not overreact to the recent jump in inflation. The market applauded and the S&P 500 closed above 4,500 for the first time ever to finish August with a solid 2.9% increase for its seventh consecutive month of positive returns.

By early September stocks pulled back on indications of a slowdown in the economic recovery. The spreading Delta variant persuaded some local governments to reinstate capacity restrictions and mask requirements cutting into spending on leisure and travel. The Labor Department reported U.S. employment growth slowed in August, with employers adding just 235,000 new jobs. But the unemployment rate dropped to 5.2%, its lowest level since the beginning of the pandemic. Weekly jobless claims continued to remain relatively low suggesting the labor demand eclipsed the impact of increasing COVID-19 cases. The Consumer Price Index increased 0.3% for the month of August, indicating the pace of inflation had slowed slightly from readings in June and July but overall remained robust. On September 20 the market sold off on emerging troubles in China’s property market and the potential repercussions on the Chinese and global economies. Stocks briefly recovered, bolstered by the strength of financials and the energy sector, which has benefitted from rising crude oil prices. The Fed confirmed it will likely begin reversing its pandemic stimulus program before the end of the year which pushed bond yields higher. Technology and growth stocks suffered losses in response and pulled the broader market down at the close of the quarter. By month-end the S&P 500 dropped 4.8%, registering its largest decline since the first month of the pandemic.

The yield on the 10-year U.S. Treasury bond was 1.5% at the beginning and end of the third quarter though it dropped as low as 1.2% midway through the quarter on concerns the economic recovery would be slowed by the spreading Delta variant and subsequently rebounded on evidence of resilient consumer demand and rising inflation. The S&P 500 was priced at 27.1 times the trailing twelve-month earnings at the end of the quarter. While the overall market remains expensive, we believe that the continuation of the economic recovery will offer the potential for significant investment opportunities.

On September 30, 2021, CGM Mutual Fund was 27.0% invested in short-term U.S. Treasury Notes. The three largest industry positions in the equity portion of the portfolio were in oil – independent production, retail and healthcare services. The Fund’s three largest equity holdings were Signet Jewelers Limited (SIG) (retail), Jones Lang LaSalle Incorporated (

JLL, Financial) (real estate services) and Diamondback Energy, Inc. (FANG, Financial) (oil – independent production).

David C. Fietze


October 1, 2021

The performance data contained in the report represent past performance, which is no guarantee of future results. The table above does not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares and assumes the reinvestment of all Fund distributions.

The investment return and the principal value of an investment in the Fund will fluctuate so that investors' shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than the performance data quoted.

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I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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