CGM Focus Fund: The Extreme Makeover
A couple of days ago when I reviewed our 2008 passive income, I mentioned that CGM Focus Fund (CGMFX), which used to generate a large amount of annual capital gain/dividend in the past, only brought in this year a fraction the dividend it brought in a year ago. And that’s not the only part that went bad in 2008.
In September 2007, I looked at the fund, which I owned since 2002, and declared it as the performance leader of my mutual fund holdings. Back then, the performance of the fund was just astonishing: more than 70% return in the first nine months of the year. Overall in 2007, CGMFX returned 80% and fund manager Ken Heenber was one of the five nominees for Morningstar’s Domestic-Stock Fund Manager of The Year award. The fund’s extraordinary performance in 2007 largely due to its heavy investment in oil and oil service related industries, having more than two-third of its assets in energy, commodity, and mining stocks.
But that was then. 2008 was a totally different story, a disaster year for the fund as prices of oil and other commodities crushed amid global financial crisis. The fund, which had returned in double digits every year since 2001 except a negative 2002, suffered a 48.2% loss in 2008.
However Heenber didn’t wait till oil prices dropped to $40 to reshuffle the fund’s holding by getting rid of those energy and commodity stocks. According to Moringstar, the fund has shifted it investments to financial stocks as early as the third quarter of 2008. Now the fund has 40.44% in Financial Services and only 9.57% in Energy as of September 30, 2008, and the fund’s top three holdings are:
- Wells Fargo (WFC)
- Citigroup (C)
- Bank of America (BAC)
along with other consumer stocks such as Abbott Lab (ABT), Wal-Mart (WMT), and MaDonald’s (MCD). But the shift didn’t serve the fund very well as financial companies continue to struggle and stocks like Citi kept falling.
With some 300% annual turnover ratio, CGMFX is a volatile, high risk fund. Despite that and the recent performance, I plan to hang around.
This article was originally written or modified on . If you enjoyed reading this post, please consider subscribing to my full RSS feed. Or you can also choose to have free daily updates delivered right to your inbox.