Heebner Beats Yacktman as Market Rewards Recovery Bet

Ken Heebner, whose top-performing mutual fund was mired in a two-year slump, is among the main beneficiaries as the rally that lifted stocks 17 percent in 10 weeks rewards managers betting on an economic recovery.

Heebner’s $3 billion CGM Focus Fund rose 32 percent from Aug. 26, the day before Federal Reserve Chairman Ben S. Bernanke hinted at fresh quantitative easing, through last week, best for a diversified U.S. mutual fund with at least $500 million, according to Chicago-based Morningstar Inc. Laggards included Donald Yacktman, whose $1.7 billion Yacktman Focused Fund beat 99 percent of large-company value rivals in the past decade.

The Standard & Poor’s 500 Index of U.S. stocks advanced in nine of 10 weeks to reach its high for the year on Nov. 5, two days after the Fed said it would buy an additional $600 billion in Treasuries through June in an attempt to stoke economic growth. Technology, energy and materials were the strongest industry groups, while telecom services, consumer staples and utilities trailed, according to data compiled by Bloomberg.

“The market has been favoring economically sensitive companies rather than names which are more defensive,” Yacktman, whose fund climbed 11 percent in the rally, said in a telephone interview from Austin, Texas. “I am starting to sense a little bit of speculation.”

Heebner’s top two holdings were Dearborn, Michigan-based Ford Motor Co. and Phoenix-based Freeport-McMoRan Copper & Gold Inc. as of Sept. 30, according to a filing today with the U.S. Securities and Exchange Commission. He sold most of his stake in Cupertino, California-based Apple Inc. in the third quarter.

‘Big Bold Bets’

CGM Focus beat all diversified U.S. mutual funds in the 10 years ended Oct. 31, averaging 18 percent annual returns in a span in which the S&P 500 changed little, Morningstar data show.

The 70-year-old Heebner is known for concentrating his fund in industries from homebuilding to commodities and for a willingness to shift direction quickly.

In 2007, CGM Focus jumped 80 percent as commodity and energy prices soared. The next year, it lost 48 percent, worse than 96 percent of its large-company growth peers, when those industries tumbled amid the global recession. In 2009, Heebner trailed 99 percent of rivals after he sold financial stocks in the first quarter, missing a rebound in those shares.

“When you make big bold bets like he does, it may work or it may not,” Courtney Dobrow, a Morningstar analyst, said in a telephone interview.

The fund’s investors pulled out $1.48 billion from January 2009 through Sept. 30 of this year, Morningstar data show.

Martha Maguire, a spokeswoman for Boston-based Capital Growth Management LP, which oversees the fund, said in an e-mail that Heebner wasn’t available to comment.

Miller Gains 24%

The $1.9 billion Legg Mason Capital Management Opportunity Trust, run by Bill Miller, has also had its ups and downs. The fund fell 65 percent in 2008 and rose 83 percent in 2009. In the latest rally, it gained 24 percent.

“We’ve positioned the fund to benefit from an economic recovery,” said Samantha McLemore, assistant portfolio manager, in a phone interview from Baltimore. The largest stake at midyear was Chicago-based airline United Continental Holdings Inc., whose shares have more than doubled in 2010 on speculation that ticket prices will rise.

Miller, 60, is best known for a record streak guiding his largest fund, the $4.1 billion Legg Mason Value Trust, to better returns than the S&P 500 every year from 1991 through 2005.

Columbia Select

Small-capitalization specialists including the $523 million Columbia Select Small Cap Fund were among the leaders during the past 10 weeks, Morningstar data show. Columbia Select increased 29 percent as smaller companies outpaced mid-cap and large-cap names, according to Bloomberg data.

Yacktman Focused, which averaged returns of 12 percent over the past 10 years, was among the worst 10 performers during the rally, according to Morningstar.

The manager looks for companies that offer the greatest long-term returns adjusted for risk, taking a buy-and-hold approach. Yacktman’s fund turns over an average of 8 percent of its portfolio each year, compared with 464 percent for Heebner’s, according to Morningstar.

Yacktman’s top five holdings include consumer staples companies such as Purchase, New York-based PepsiCo. Inc. and Atlanta-based Coca-Cola Co.

“I have rarely seen so many good businesses selling for below-average prices,” said Yacktman, 69.

The run-up in economically sensitive stocks has been based in part on assumptions of future growth “that may be unrealistic,” he said.

To contact the reporter on this story: Charles Stein in Boston at cstein4@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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