Advisor Blog

Ken Heebner, manager of the until recently high flying CGM Focus Fund, seems to be following in the footsteps of Bill Miller, manager of the Legg Mason Value Fund.  Miller's fund beat the S&P 500 for 15 years in a row (of course, we'd expect value to outperform the S&P 500, but that's the subject for another article) only to experience a meltdown starting in 2006. 

Heebner's fund became the darling of active management devotees after a series of great returns from 2000 through 2007.  But, the fund has significantly underperformed for the last three years.  Fickle retail investors have bolted for the exits and the fund has lost over 70% of its assets from June 2008 through March 2011.  I can't recall the last time I saw the silly advertisement that they ran for years with the two guys fencing and discussing the performance of their mutual funds.  Touche!  The market wins again.

For anyone who has really examined the evidence, the active versus passive debate was over a long time ago.  But, that doesn't stop the Wall Street marketing machine from attempting to convince uninformed investors that there is a guru out there who can pick stocks, time the market, or read a crystal ball that can predict the future.  We've written about this many times in articles like Keeping Score and Choosing an Advisor, Part 2 - Active vs Passive.  But, great real world examples like this one still offer an important lesson.