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Lindley Estes is a business writer for The Free Lance-Star and This blog is on Fredericksburg-area business. Send an e-mail to Lindley Estes.

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Investment star employs hit-and-run strategy

FORTUNE MAGAZINE labeled mutual fund manager Ken Heebner "America’s Hottest Investor" on the cover of its June 9 issue.

Heebner’s flagship fund, CGM Focus (Ticker: CGMFX), boasts a 24 percent annual return over the past decade, the best 10-year record of any U.S. mutual fund. That compares with the 4 percent annual return of the Standard & Poor’s 500 during the same period.

Heebner has made a killing during his career by spotting industry trends early on. And if he’s right about his latest hypothesis, it doesn’t mean good news for people at the gas pump.

As of March, Fortune writes, 64 percent of CGM Focus’s assets were in commodities. He had big stakes in oil and steel stocks. He told the magazine that he thinks steel prices could double and oil could blow by $200 a barrel. His research suggests to him that Saudi Arabia is running out of oil.

Before you go running to trade in your car for a hybrid (or perhaps a bicycle), consider this: It’s folly to try to play copycat with Heebner’s stock picks.

A fanatical researcher, Heebner will quickly reverse his opinions if he finds facts that alter his world view. His fund’s turnover last year–384 percent–is a number that Uncle Sam will love. It means he traded enough to buy and sell the entire portfolio almost four times. By the time you try to buy what Heebner is buying, this "mad genius" may have moved elsewhere.

Further, a mutual fund cynic would argue that anybody can have a string of good luck, and perhaps Heebner is just having his day in the sun now.

It’s a tough sell to say Heebner’s outstanding 30-year career is due simply to random luck. He’s a colleague of legendary mutual fund manager Peter Lynch and has put up comparable numbers.

CGM Focus made 80 percent last year and is up another 15 percent this year. It’s returned 45 percent or better four times since 2000. Launched in 1997, the fund has lost money in just one calendar year: 2002.

Like many outstanding investors, Heebner uses in-depth research to find a small number of winners and then bets big. CGM Focus typically holds just 20 to -30 stocks at a time.

Much of the fund’s success of late has come from Heebner’s ability to spot trends before other investors.

In December 2000 he bought home builders before the housing boom. He then got out before the bust, sensing the problems in mortgage-lending standards. Then he loaded up on oil, copper and fertilizer companies, which have profited from a rise in profits caused by booming international demand. He’s shorted mortgage lenders and other stocks poised to struggle.

CGM Focus is a no-load fund with a reasonable 1.3 percent expense ratio. At 67, Heebner shows no signs of slowing down.

None of this is a recommendation to buy Heebner’s fund. But as the Fortune article shows, it’s well worth it to at least take notice of his ideas and respect his gaudy performance.

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