The Best Real Estate Mutual Fund Ever

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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