Heebner Turns Really Bullish on Market

I thought that it’s time to revisit Ken Heebner’s macro exposures after the recent WSJ article about Heebner making a big bet on Financials. I had written about Ken Heebner’s CGM Focus Fund (CGMFX) before. CGM Focus has an excellent long term track record and its portfolio manager, Heebner, manages it as a high turnover fund to make large sector and macro bets.

My analysis shows that Ken Heebner is making more than just a bet on Financials, he is betting on a cyclical market recovery.


Financials an early-cycle sector
As the chart below shows (click to enlarge), my reverse engineering of the CGM Focus Fund’s estimated exposures confirms the WSJ article about the extent of Ken Heebner’s overweight position in Financials:


Interest sensitive stocks such as Financials are early cycle movers. This exposure seems to be part of his overall theme of betting on a market recovery. The chart below (click to enlarge) shows the CGM Focus position in market beta, which shows the fund moving from a defensive position to an aggressive position:


I also estimated the fund’s exposure to the Morgan Stanley Cyclical Index and it shows a big bet on a cyclical recovery:



CGM Focus Fund has neutral to slight overweight positions in Technology, Energy and Materials. The fund's underweight positions are mainly in the defensive sectors such as Health Care...



…and Consumer Staples.


Ken Heebner, who went on record as having turned bullish in October, is showing now that he has turned really bullish.

Comments

[pokernut:]

Ken Heebner's CGM Focus fund is -42.03% YTD.

enough said.

2008 Dec 11 11:01 AM

[OldLimey:]

Enough said indeed.

2008 Dec 11 11:30 AM

[Tim Knight:]

slopeofhope.com/2008/1...

2008 Dec 11 02:27 PM

[keithpiccir...:]

Thanks for revisiting Mr. Heebner, just as you said you would.
As for Mr Heebner's belief in a cyclical market recovery, apparently he thinks stocks will recover as falling prices coupled will falling incomes will force a reduction in consumption with resulting equilibrium through an increase in aggregate demand (government infrastructure spending).
This will be implemented when and if the government interventions into the money centers and credit availability to those worthy reoccurs.
America will have to become a nation much better at saving to help mitigate our trade imbalance.
The late bear/early bull scenario that he envisions may be rooted not in a cyclical market recovery but an economic fluctuation model wherein when money supply and liquidity become sufficient worldwide with low interest rates.
The resultant improved stock market cycle could then occur.
I keep looking to the Baltic Dry Index, China and dry goods and iron ore as a signal that conditions have improved and change is imminent.
Perhaps Mr. Heebner also believes in political business cycle strength, wherein a charismatic new administration with its expansionary policy could also be the impetus to turn market emotion and psychology.
I was just at the Markov Processes International site, and give you credit for being able to deduce such things pertaining to a fund's probable sector holdings.
These dynamic modeling styles of analysis by data mining return streams, performing regression analysis, apparently can tell not only what sectors a fund's allocation is, but also if a hedge fund has strayed from its stated goals and objectives and is currently in much trouble!
I have started looking deeper into the Focus Fund's Sharpe ratio, and his beta and do not see any disparity that raises alarm as compared with other fund managers of this type risk in present recessionary period.
His Alpha has always been very good.
However, the low Treynor ratio of 2.14 seems poor as a ranking criteria.
Decades ago I started a masters degree in Research Measurement and Evaluation in Connecticut but only got halfway through it, so you have my respect and admiration.
Keep up your succinct and thoughtful articles.

2008 Dec 11 08:05 PM

[happysoul77777:]

Heebner is the best mutual fund manager in the last 10 years. He is even better than Peter Lynch. The fact that he is down 42% this year speaks little about his long-term performance. I think, because the market is rigged to the downside (FAS 15, the repeal of the uptick rule, massive naked short selling, unregulated CDS), thus the sudden market collapse trapped even the best.

2008 Dec 11 10:20 PM

[Big-P:]

Man, it sure is easy for these guys to buy those dips with other people's money!

Too bad (for all of them) I'm taking this market to NEW LOWS before they can blink.

Sunday is going to be especially brutal so, what ever you do, don't go home long Friday's close.

If you're trading them, here's some help.

I'm thinking about bottoming them on the 16th--so that I can let them re-load the powder keg and bounce them a bit--but after that I'm taking them back through the lows with a vengence.

Time to clear out a little dead-wood boys and Big-P's just the man for the job...

2008 Dec 12 01:41 AM

[RCA:]

On Dec 12 01:41 AM wallstreetprick wrote:

> Too bad (for all of them) I'm taking this market to NEW LOWS before
> they can blink.

I, for one, would not want to bet against it. There are a lot of anvils hanging on the market right now. A little bit of hammering could do a lot of damage.

2008 Dec 12 03:03 PM

[Cam Hui:]

See my reply to some of the skepticism expressed about Heebner's record here: humblestudentofthemark...

2008 Dec 13 02:31 PM

[Wyatt_Earp88:]

Pokernut, other than bear funds, whose fund is not down 30-40% YTD?
Heebner's CGM Focus fund returned around 80% in 2007, so he had a little further to fall than most of his peers. Looking at it another way, how many funds have averaged a 19% return for 2007 and 2008? 'nuff said?


On Dec 11 11:01 AM pokernut wrote:

> Ken Heebner's CGM Focus fund is -42.03% YTD.
>
> enough said.

2008 Dec 16 07:24 PM

[E Nuff Sed:]

This recession is not going to last forever - it probably more than 1/2 over and most likely be over by the Q3-09. With interest this low, as soon as confidence returns to the credit market (my guess is starting sometime in Q1-09) equity market will start moving decisively upwards.

With such low interest rates - and demand for credit - banks can start lending again and make out like bandits feasting on the spread.

2008 Dec 16 10:01 PM

[kamuranglenn:]

What isn't....


On Dec 11 11:01 AM pokernut wrote:

> Ken Heebner's CGM Focus fund is -42.03% YTD.
>
> enough said.

2008 Dec 17 08:41 AM

[dbackroyal:]

I get a kick out of all these losers taking a swipe at Heebner as if there is a reward for it. The man has nade me a lot of money and will continue to do so. Stay out of his fund at your own peril. Thanks, it just means more profits for me.

2008 Dec 31 10:35 AM