CGM Focus Fund: My New Performance Leader

For quite some time, Dodge & Cox International Fund (DODFX) was the top performer in our mutual fund investments. Less than two months ago, our investments in the fund have returned more than 100%. However, the market downturn since then has eroded some of the gains. Now the overall return of this fund is down to 88%.

Then a new leader has quietly emerged recently and it’s CGM Focus Fund (CGMFX), a fund that once I was considering cut loss due to its high turnover ratio (300% in 2006). I am glad I didn’t

The following is a chart comparing YTD return of CGMFX against S&P 500, which speaks for itself. As of September 27th, S&P gained 9.46% while CGMFX returned 61.57%!

So what’s behind the fund’s astonishing run this year? According to a news report on Bloomberg.com, CGMFX

has more than two-thirds of the fund in energy, commodities and mining companies, three of the 10 best industry groups in the S&P 500. The fund has risen 59 percent this year, driven by Potash Corp. of Saskatchewan Inc. in Saskatoon, Saskatchewan, the world’s biggest maker of fertilizer, and Houston-based oil-services company Schlumberger Ltd. Shares of Potash have more than doubled this year and Schlumberger has surged 67 percent.

From the fund’s semi-annual report, CGMFX investments include

• Oil service: 19.4%
• Metals and mining: 12.8%
• Oil - Independent production: 9.2%
• Offshore drilling: 4.5%

Among the fund’s top 25 holdings, 7 of them have gained more than 100% so far this year and 10 have returned more than 50%.

No wonder it can perform so well.

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