The Best Real Estate Mutual Fund Ever (CGMRX) and MORE
Posted by Frugal on April 16th, 2007
For me to come out and recommend a real estate fund, you know this mutual fund needs to be more than truly outstanding. I’m very bearish on real estate as the regular readers know very well. But this real estate fund, plus its other fund offerings in other categories are simply outstanding. In fact, I should say that it is one of its kind, so outrageously probabilistically impossible.
I first noticed this mutual fund back in year 2002/2003, when I was studying various funds for asset allocation. Certainly, real estate must be an essential element to anyone’s portfolio, especially if you don’t own your home. At that time, I noticed that this fund had a very good performance record. Not only that, when I compared its major holdings with other real estate funds, its holdings are wildly different. Most real estate funds hold companies that hold residential or commercial rental properties, collecting rents to produce their yields. This fund however held mostly home builders. Well, from year 2003 to 2005, home builders had great returns, probably out-beating 80% of the stock selections that you can ever pick yourself. But today’s CGMRX holding has not even a home builder stock in its top ten holding, keeping its 20% annual return for the past ten years completely intact.
The fund manager Heebner of this fund company Capital Growth Management is no doubt a VERY smart investor. Here are some highlights of his recent words:
[On housing markets] It will be the biggest housing-price decline since the Great Depression,'’ Heebner, 66, said today in an interview in Boston. Prices may fall by a fifth in some markets….That would leave home prices at levels last seen in 2003 and 2004, the middle of boom that lifted prices to a record in 2005. The damage from high-risk mortgages will slow the U.S. economy, though not enough to send it into a recession….
[On financial brokerage stocks] The investment banks and brokerage firms that package and sell these products won’t get hurt because they have passed on the biggest risks to the investors, “They know the product is toxic; they’re not going to get caught,'’
[On mining, China, infrastructure plays] He is buying shares of mining companies that benefit from growing infrastructure needs in India, China and Russia. CGM Realty Funds also holds shares of Las Vegas Sands Corp., the casino operator that is developing real estate in Macau, China, and Mexican homebuilder Desarrolladora Homex SAB.
On very few occasions, you can witness such a smart investor. Keep him on your list to watch. Take his words and regurgitate during your contemplation. And if you really have to buy a real estate fund, CGMRX is probably one of the better choice. In this particular case, I would really say “FORGET about the low fee Vanguard”. Here is the comparison chart between VGSIX and CGMRX. Don’t use Yahoo to plot because Yahoo plotting doesn’t take into account the almost 20% capital distribution/dividends in the last couple of years by CGMRX. The following plot uses the price on 12/31/1996 as 1. CGMRX returned almost 7 times or 700% in the last 10 years. (I mispelled CGMRX as CMGRX in the chart.)
On the last note, CGMRX and its other offering are mostly concentrated bets and non-diversified. You will be taking higher than normal risk when you buy one of his funds due to its concentrated bets. But given its past record, although there is no guarantee for the future, I would probably still lean towards buying any CGM funds.
I currently have no holding, but I’m really going to seriously consider CGM funds (not necessarily CGMRX), especially after I’ve missed the entire ramp-up in the most recent real estate bull market (which has probably turned into a bear market already).
Its CGMFX Focus Fund returned 24.7% from 1/3/06 to 4/9/07, and 17.9% from 1/3/07 to 4/9/07, very good this year, but not so good last year. This uncorrelation to the general market is an excellent choice for asset allocation.
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April 16th, 2007 at 11:49 am
thanks for the advice. could be a good way to diversify the portfolio.
April 16th, 2007 at 5:54 pm
I invested in CGMFX beginning of this year and it was the only fund that didn’t lose money in the March crash.
April 17th, 2007 at 7:47 am
TRREX has a better yields, growth and lower expenses. If you use yahoo finace chart to compare CGMRX vs TTREX. you will see how well TRREX beat CGMRX
April 17th, 2007 at 8:16 am
I best performing RE Fund is EGLRX. This is the Alpine International Real Estate Fund. It is a great hedge against the US Dollar.
April 17th, 2007 at 5:15 pm
Okay, sounds great to me… I’ll do my homework over the weekend and if I’m satisfied, pick up some next week. You sure make a strong case for it, though…
April 17th, 2007 at 6:12 pm
By the way– you were asking after a place to get a java charting applet… see http://www.multicians.org/thvv/pie-chart.html — it’s not brilliant but it’s not bad, and it’s free…
April 18th, 2007 at 11:17 pm
Wing,
Yahoo’s chart is deceiving and doesn’t include the dividends/capital gain distributed. But Yahoo’s historical data has those information. If you pull up the historical data, and look at the LAST column for the adjusted price (after dividends are counted), you can see that between now and Jan 02, CGMRX out-performed both TRREX and EGLRX. CGMRX returned 4.55X, while EGLRX returned 3.93X, and TRREX returned 3.19X.
The last column does NOT give you the true return still because it only adjusted your cost basis downward by the amount of dividends, while in reality or practicality, you probably will re-invest your dividends back into the same fund, in which case your return is even better than the simple ratio.
April 18th, 2007 at 11:17 pm
TOK,
EGLRX is great no doubt. Still worse than CGMRX however (see my previous comment).
April 18th, 2007 at 11:20 pm
Framemaker Developer,
Thanks for your pointer on the java charting. I will take a look when I get a chance.
September 8th, 2007 at 12:05 pm
I have been in and out of CGMRX for the last 10 years. It has proven to be a very solid investment. I currently have about 9% of my portfolio in CGMRX, balancing it with about 6% EGLRX, so far proving to be an effective combination.
October 29th, 2007 at 4:58 am
Good advice!