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One of my long-time readers recently asked about Ken Heebner's position in US long Treasury bonds. I then remembered that one of my earliest posts demonstrated a technique of mine for reverse engineering a fund's factor exposures and I had written about Ken Heebner's CGM Focus before.

In response to the request, I dug out my model which I hadn't touched since 2010 to analyze the factor betas of Heebner's CGM Focus fund, which has a good long-term, albeit volatile, record. As Ken Heebner's style tends to be macro-focused and he has a reputation for swinging for the fences, I was interested to see his factor exposures. With the caveat that this form of analysis isn't perfect and the magnitudes of the exposure aren't always well calibrated, here is my estimated factor beta exposures of CGMFX over the last few years.

First of all, in response to my reader's question, CGMFX was short the US long bond, though the short position appears to be getting reduced.

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He remains overweight the home builders and he continues to build those positions.

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My analysis also shows that the beta of his fund to the Morgan Stanley Cyclical Index is positive and growing, though it is unclear how much of that is related to the home building position. Other notable sector exposures include an overweight in Financials, which has outperformed.

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As well, Heebner appears to have caught the move in Healthcare stocks, which has also been market leaders.

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He is underweight Technology:

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...and Energy:

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My analysis of sector relative strength shows that Financials, Consumer Discretionary and Healthcare to be the recent leadership and laggards to be the resource related sectors, as well as Technology. This indicates that anyone buying into CGMFX is buying a high price momentum portfolio.

As my previous analysis of the interaction of price momentum and trend following models shows, a momentum chasing strategy works well during bull phases but will get hurt badly during bear phases and market corrections. While I recognize that Ken Heebner is known not to be afraid to trade in and out of positions, investors should recognize the risks of this approach and diversify their style exposures accordingly.

Disclosure: Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). The opinions and any recommendations expressed in the blog are those of the author and do not reflect the opinions and recommendations of Qwest. Qwest reviews Mr. Hui's blog to ensure it is connected with Mr. Hui's obligation to deal fairly, honestly and in good faith with the blog's readers."

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this blog constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or I may hold or control long or short positions in the securities or instruments mentioned.

Source: A Ken Heebner Review