There are no geniuses/past performance doesn’t guarantee future results department

It seems like the surest kiss of death for an active fund manager is to be proclaimed by the financial press as a genius hot fund manager. The latest seems to be Kenneth Heebner, whose high flying CGM Focus fund has turned in eye popping results including an 80% return in 2007. Not surprisingly the returns were generated with highly concentrated positions and leverage (the fund can go short stocks).
For those familiar with how these stories usually pan out, the results of the past two months should not come as a shock. CGM Focus fund managed by Ken Heebner has fallen 21.33% since the Fortune Magazine May 23,2008 cover article proclaiming him America’s hottest investor. That is almost 3x the 7.27% decline for the s+p 500 over the same period .


s

ome excerpts from the article
America's hottest investor

Never mind the rocky market. After a string of supersmart calls, mutual fund manager Ken Heebner is putting up the best numbers of his sterling career


The best mutual fund manager around - a.k.a. Ken Heebner of Capital Growth Management - looks restless. He is sitting in a conference room at Goldman Sachs's Boston office, listening to a young analyst pontificate about all the trends he thinks will sweep the markets in coming years. Oil demand outpacing supply. The rapid growth of agriculture. The increased sway of sovereign wealth funds. And on and on.
Heebner couldn't care less. His flagship fund, CGM Focus (CGMFX), has already made a killing on energy and agriculture, and Heebner has no patience for the pet theories of this or any other analyst (or economist or strategist). "I want information, not opinions," Heebner will later tell me. Then, just as the meeting is looking like a washout, Goldman analyst Marc Fox lets something slip that starts Heebner's brain whirling.
Fox mentions that sovereign wealth funds are diversifying out of bonds and bank bailouts and into broad portfolios of common stocks. Coming from Goldman, the world's top trading house, this is valuable information. Heebner is one of the few fund managers who routinely engages in short-selling, and the prospect of a couple of trillion dollars flooding the equity markets should be enough to give any short-seller pause.
Immediately Heebner is peppering Fox with questions about where all this sovereign dough is going, wondering, for instance, whether Goldman is now recommending "short-busting" strategies to its worldwide clientele. (Short-busting involves trying to drive up the prices of stocks that a lot of investors have sold short.) "All I can say," Fox replies, looking a tad overwhelmed, "is you're multiple steps ahead of me."
Fox shouldn't feel too bad: Heebner is multiple steps ahead of everyone these days. At an age when most of his contemporaries have either retired or given up the daily grind of running publicly traded funds, the 67-year-old Heebner is putting up the best numbers of an already exemplary 30-year career. He's Barry Bonds without the steroids. "He's a rock star - he's Bono," quips his Irish-born (and U2-loving) analyst Catherine Columb. Given that U2 hasn't put out a good album since Joshua Tree - sorry, Catherine - Bono should feel flattered. (Of course, it's doubtful that Heebner, who by his own admission spends most of his waking hours thinking about the markets, could pick either Bonds or Bono out of a lineup.)
Just how good has Heebner been? We may well be witnessing the most dazzling run of stock picking in mutual fund history. Since May 1998, Focus has an average annualized return of 24%, the best ten-year record of any U.S. mutual fund, compared with only 4% for Standard & Poor's 500. Focus, which has $7.4 billion in assets, is already up 15% in 2008 (as of May 19), but it is 2007 that will be remembered as Heebner's pièce de résistance. Fueled by big bets on energy, fertilizer, and metals, Focus soared 80% last year, vs. 5% for the S&P 500. "I told Ken it was like he was walking between the raindrops," says CGM president Bob Kemp, who oversees sales and marketing at the firm, of the year Heebner had in 2007. "It amazes even us." Last year marked the fourth time since 2000 that the fund returned 45% or better. And it's not as if Heebner has needed the big years to make up for a lot of losses: Launched in late 1997, Focus has had only one money-losing calendar year (2002).
Peter Lynch's 14-year tenure at Fidelity Magellan has long been the gold standard for mutual fund excellence. During Lynch's best ten years - August 1977 to August 1987 - Magellan recorded an average annual return of 36%, according to fund tracker Morningstar. It's a remarkable achievement, but even Lynch acknowledges that he was backed by a strong tailwind. The S&P 500 returned 19% a year over the same period. In other words, Lynch beat the market by 17 percentage points a year during his heyday. Ken Heebner has beaten the market by 20 points a year during his heyday…
And Focus isn't the only Heebner-managed fund that's excelling. CGM Realty (a sector fund), CGM Mutual (a balanced fund that owns stocks and bonds), and CGM Capital Development (closed to new investors since 1969 and soon to be merged into Focus) have been standouts too. Realty boasts a 22% annualized return for the past ten years, sixth-best in the mutual fund universe, according to Morningstar. It's also the only fund in its category that's been bucking the real estate slump. Realty's one-year total return: 34%, vs. 6% for its nearest rival.
A true contrarian
Even more remarkable than the raw numbers is how Heebner has earned them. Heebner is a true contrarian, who says he's most confident as an investor "when everyone else thinks I'm nuts." He works long hours trying to identify emerging trends in the economy. When he finds a promising one, he'll go all in, making huge bets on the stocks poised to benefit. Asked how long it takes him to identify those stocks, Heebner answers, "About ten minutes. I've been at this a long time." It's an investing style that will never be taught in business schools and is definitely not something any amateur should try at home. But Heebner, blessed with uncanny instincts, has managed to see around just about every corner in a market that has befuddled just about everyone else.

the above seems a strange definition because if anything Heebner seems to be the ultimate momentum player according to morningstar his CGM focus fund which can go both long and short has 58% of its long positions in energy, 38% in materials, Its short positions are heavilty concentrated in the financial sector)