CGM Focus (symbol CGMFX)
MANAGER: Ken Heebner
RETURNS: –19.1% YTD; 0.7% over the past 5 years; 10.2% over the past 10 years
ASSETS: $2 billion
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TOP HOLDINGS: Priceline.com, Herbalife, National Oilwell Varco
How it went astray: When Heebner and his fast-trading, concentrated style are in sync with the market, his numbers are off the charts. But when he loses touch with the market’s pulse, CGM lags big-time, as it did in 2011 (the S&P 500 gained 1.3%). At last report, Focus held only 22 stocks, including Citigroup and Ford Motor, both stinkers in 2011. That said, Heebner trades so rapidly (Focus’s turnover in 2010 was 363%) that it’s hard to say which stocks did the most damage in any given period.
What now? Focus’s ten-year return is superb. But it’s an inconsistent one, and many investors buy after the fund shines and sell after it stumbles. That’s one reason we removed Focus from the Kiplinger 25 in 2010. Unless you can stomach volatility and performance that often differs from the rest of the crowd, this fund is not for you.
Fairholme (FAIRX)
MANAGER: Bruce Berkowitz
RETURNS: –24.7% YTD; 1.7% over the past 5 years; 8.1% over the past 10 years
ASSETS: $9.5 billion
TOP HOLDINGS: AIG, Sears Holdings, Berkshire Hathaway
How it went astray: A former member of the Kiplinger 25 (it got the boot last spring), Fairholme is as concentrated as they come. At last report, Berkowitz held only 19 stocks and had three-fourths of the fund’s assets in financials. The ill-timed bet on financial stocks threatens to ruin the fine record he built in the fund’s first 11 years. And after his investing firm bought a majority stake in St. Joe, a troubled Florida real estate company, Berkowitz took over as the developer’s chairman, raising questions about whether he can supervise a company and pick stocks, too.
What now? A focused fund is one thing; a fund that makes a massive bet on a troubled sector is another. Plus, Berkowitz is contending with a flood of redemptions by disgruntled Fairholme shareholders. It’s time for you to join them.
Fidelity Magellan (FMAGX)
MANAGER: Jeffrey Feingold
RETURNS: –9.1% YTD; –2.1% over the past 5 years; 0.7% over the past 10 years
ASSETS: $16.7 billion
TOP HOLDINGS: Apple, Google, Amazon.com
How it went astray: One problem was size -- Magellan topped $100 billion at the start of 2000. And a revolving door at the top hasn’t helped. In 2008, previous manager Harry Lange’s bets on American International Group and Wachovia, among others, dragged the fund to a crushing 49.4% loss. Feingold, who took over Magellan in September, has delivered decent returns at Fidelity Trend (FTRNX), which he continues to run. But he has never run a fund as big as Magellan, which, even at its diminished size, is some 15 times larger than Trend.
What now? Feingold focuses on steady growers, a strategy that we like. Because Magellan’s management fee is based on performance, the fund’s current expense ratio, 0.60% annually, is appealing. If you hold shares, it’s worth waiting to see how well Feingold performs.
Legg Mason Opportunity (LMOPX)
MANAGER: Bill Miller
RETURNS: –31.1% YTD; –11.6% over the past 5 years; 1.6% over the past 10 years
ASSETS: $1 billion
TOP HOLDINGS: Ellington Financial, United Continental, Amazon.com
How it went astray: Miller achieved fame at Legg Mason Value, which beat the S&P 500 index for 15 straight years through 2005. He announced plans to step down from the helm of that fund in April 2012, but he's still running Opportunity, a more flexible and more aggressive version of Value.
Opportunity has had some superb years, but 2008 (a loss of 65.5%) and 2011 were disasters. Stakes in the likes of Bear Stearns, Countrywide Financial and Freddie Mac torpedoed the fund in 2008 (we deleted it from the Kiplinger 25 late that year). Financial stocks -- 32% of assets at last word -- hurt returns again in 2011, as did a big position in Eastman Kodak, which sank 80%. He finally sold his shares in that stock in the autumn of 2012.
What now? Opportunity’s roller-coaster returns are a deal killer. Other value funds do a better job of delivering steadier returns with less volatility.
Data through November 4, 2011. Five-year and ten-year returns are annualized.
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