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Ken Heebner is the manager and co-founder of Capital Growth Management. Since starting his fund in 1990, he has grown the fund to over $6 billion and enjoyed such stellar performance that he earned nicknames like, “the best… fund manager around” and “America’s hottest investor.” He managed to beat the S&P 500 index by 63 percentage points in 2000. In 2001, he returned 47% vs. S&P 500’s 12% decline. He beat the market marginally in 2002 and 2004. In 2003, he returned 67% and beat the S&P 500 by nearly 38 percentage points. In 2005 Heebner again beat the market by 20 percentage points. Even though he underperformed in 2006 marginally, he killed the S&P 500 by returning 80% in 2007.

These were amazing returns. Unfortunately he lost a lot of credibility in 2008 and 2009 when he returned -48% and 10.5% respectively. His 2010 performance isn’t enough to recover his 2008 losses. His portfolio gained only 16% in 2010. We like Ken Heebner because he isn’t afraid of betting against the market when most fund managers are secret index-huggers. Heebner’s new stock picks are marginally underperforming the SPY since the end of second quarter.

Company

Ticker

Value (x1000)

Activity

Return Since June

BAIDU INC

(BIDU)

222386

116%

4%

CITIGROUP INC

(C)

229303

788%

-30%

OCCIDENTAL PETROLEUM

(OXY)

228378

1061%

-18%

FORD MOTOR CO DEL

(F)

230082

New

-23%

CUMMINS INC

(CMI)

180073

New

-12%

BED BATH & BEYOND INC

(BBBY)

175986

New

-0%

HERBALIFE LTD

(HLF)

173496

New

-1%

ROSS STORES INC

(ROST)

163445

New

-5%

TIFFANY & CO NEW

(TIF)

156035

New

-10%

BORGWARNER INC

(BWA)

127648

New

-14%

FREEPORT MCMORAN

(FCX)

103684

New

-14%

DIGITAL REALTY TRUST INC

(DLR)

93733

New

-3%

WYNN RESORTS LTD

(WYNN)

90430

New

7%

VORNADO REALTY TRUST

(VNO)

78737

New

-6%

UNITEDHEALTH GROUP INC

(UNH)

65574

New

-11%

CAMDEN PROPERTY TRUST

(CPT)

60439

New

7%

JPMORGAN CHASE & CO

(JPM)

56309

New

-14%

AETNA INC NEW

(AET)

50263

New

-9%

MACYS INC

(M)

40936

New

-10%

MOODYS CORP

(MCO)

34515

New

-21%

COACH INC

(COH)

33883

New

-13%

DISCOVER FINANCIAL SERV

(DFS)

30763

New

-7%

POLARIS INDUSTRIES INC

(PII)

27793

New

-2%

However, his performance is hardly what most investors expect, especially after Heebner enjoyed a large success on his positions in Delta Airlines (DAL) and United Air (UAL) in the first quarter and introducing several new positions in the second. In addition to new positions, we also included on our list Heebner’s positions that are at least doubled during the second quarter. These stocks are Baidu Inc, Citigroup Inc and Occidental Petroleum.

Heebner’s largest bullish stock pick, BIDU, actually gained 4% since the end of June. Moreover, it is one of only three stocks of his new 23 picks that had a positive return. Baidu is also a favorite of Ken Fisher at Fisher Asset Management; it is his tenth-largest position. Heebner’s only other two stock picks to garner a positive return since the end of last quarter were Camden Property Trust and Wynn Resorts Ltd; each has returned 7 percent since the end of last quarter.

Heebner’s biggest losses since the end of the second quarter were in Citigroup, where he has lost 30% since the end of June. Heebner evidently had high hopes for the banking company; he increased his position in the company by 788% last quarter. Citigroup stock is popular with many other hedge funds; however, many other hedge fund managers have been reducing their positions in the company. For instance Eric Mindich of Eton Park Capital owns nearly 10 million shares in Citigroup. John Paulson, the man who rose to fame after it became public that he bet against subprime mortgages, also owns a large number of Citigroup shares.

Heebner's other new mega cap bank stock was JP Morgan. JPM lost 14% and underperformed the market as well. On the other hand, Discover Financial Services lost only 7%, outperforming the market.

We like Heebner. Even though his bullish bets as a whole underperformed the market recently, his top bullish bet outperformed the market. This is generally the case with most fund managers: Their highest-conviction stock picks outperform the market. We believe investors can beat the market over the long run by imitating Ken Heebner's newest top stock picks.

Source: Outperform The Market By Imitating Ken Heebner's Picks