Taking a Peek at Ken Heebner's Shorts
By Steven Syre and Steve Bailey
Special to TheStreet.com
5/4/98 1:15 PM ET
We've been waiting to get a look at Ken Heebner's shorts.
No, we still don't know if he wears boxers or jockeys, but we now know the stocks that Heebner, one of the best long-term stock-pickers anywhere, has been selling short.
This is not a topic that the usually-chatty Heebner wants to discuss. He absolutely abhors the nickname of "The Mad Bomber,'' Wall Street's moniker for the man who has a habit of dumping huge stakes in companies that disappoint him. And the last thing he wants to be associated with are the kind of short-sellers known for dropping dimes to reporters in a effort to torpedo a stock.
But the charter of Heebner's newest fund, CGM Focus, does allow him to short stocks for the first time since he started his funds. And the fund's quarterly report, just mailed to shareholders, gives us the first look at those shorts: Ascend (ASND:Nasdaq - news), Compaq (CPQ:NYSE - news) and E*Trade (EGRP:Nasdaq - news).
Altogether, the three shorts have a value of just $3.7 million in the portfolio, tiny compared to the $144 million in assets in the fund. And for the quarter ended March 31, Heebner's short positions were a loser in a rising market. There's no way to tell whether he still holds the same short positions today.
Heebner's Focus fund, started in September, got off to a rough beginning, but has come on strong. So far this year through April, Focus is up 20.4% compared with 15.1% for the S&P 500 index. Since inception Focus remains far behind the index.
Anyone who has followed Heebner's career knows to expect a rocky ride. He is a money manager who swings for the fences with big bets, occasionally falling on his face like in 1994 when his flagship, CGM Capital Development fund, was down a whopping 23%. But few have done better over the long term: The $807 million Capital Development Fund has a three-year average annual return of 34.5%, ranking it No. 23 of 536 growth funds tracked by Lipper Analytical Services. Though its five-year record, which includes '94, is less impressive, the fund's 10-year 22.3% annual return easily outpaces the S&P's 18.9%.
Capital Development has long been closed to new investors, so the Focus fund offers the best access to Heebner's stock-picking. Both funds are highly concentrated, with slightly more than 20 stocks in each portfolio. The much-smaller Focus tends to have smaller-cap stocks. The CGM Top 5
The five largest equity holdings in Ken Heebner's three general equity funds.
Capital Development Fund
Warner-Lambert
USG
Chase Manhattan
Citicorp
Philips Electronics
Focus Fund
USG Corp.
Finish Line
Airborne Freight
Alaska Air
Nokia
CGM Mutual Fund
Chase Manhattan
Warner-Lambert
Philips Electronics
Boston Properties
Vornado Realty Trust
Source: CGM quarterly reports
Heebner has done all his shorting in the technology area, but he is not a tech guy. His portfolios are light on technology; Philips Electronics (PHG:NYSE - news), Nokia (NOKA:NYSE ADR - news) and Superior Telecom (SUT:NYSE - news) represent his holdings in the sector.
Basic materials and airlines are two of the largest sectors for both Capital Development and Focus. Retail stocks are the largest (19.4%) position in Focus. Money-center banks make up the third-largest position (11%) in Capital Development, but are not in Focus at all.
Across Heebner's three general equity funds -- Capital Development, Focus and CGM Mutual fund -- four stocks tend to repeat among his top holdings: Chase Manhattan (CMB:NYSE - news), Warner-Lambert (WLA:NYSE - news), Philips Electronics and USG Corp. (USG:NYSE - news).
Real estate investment trusts are in negative territory so far this year, but Heebner remains bullish on the sector. His CGM Realty fund, with $570 million is assets, is one of the largest REIT funds and he has another $250 million, or 21%, of his CGM Mutual fund in REITs.
He has two-thirds of his Realty fund in office and industrial REITs. Largest holdings: Tower Realty Trust (TOW:NYSE - news), SL Green Realty (SLG:NYSE - news) and Vornado Realty Trust (VNO:NYSE - news). CGM Mutual fund has large holdings in Boston Properties (BXP:NYSE - news), Equity Office Properties Trust (EOP:NYSE - news) and Starwood Hotels and Resorts (HOT:NYSE - news).
Although Heebner is now shorting stocks, it probably says less about his outlook for the market than his interest in simply having another tool in his toolbox. But his quarterly report does offer this caution to investors: "We doubt the equity market can maintain the current pace and believe it will become more selective as the year progresses.''
Steven Syre & Steve Bailey write for The Boston Globe. This column is exclusive to TheStreet.com.
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