The commercial real estate sector is in chaos. And the market is still collapsing with delinquencies on commercial mortgages still climbing. (For more on the commercial mortgage meltdown see my post, “Danger to banks from commercial mortgages still climbing” from 8:30 a.m. on August 12.)
You’d think there would be money to be made out of that situation if you can pick the winners and avoid the soon to go bust.  And you’d be right.
I don’t have any faith in my own ability to sort through the haystack of commercial real estate stocks, trusts, partnerships, and what not. I know I don’t have the experience or the contacts in real estate to separate the sinking ships that will indeed go to the bottom from the sinking ships that will survive the storm after pumping like crazy.
But I can name a mutual fund manager, Ken Heebner, who does know this sector so thoroughly that I think he could make you some good money here. I wouldn’t bet my retirement money on this fund, CGM Realty (CGMRX). Heebner tends to make big bets and the fund is very volatile. In 2008,for example, it posted a 46.8% loss. But if you’ve got some speculative money looking for a home, and have the nerves of steel that you might need to stay on board until the profit materializes, then this fund’s upside volatility is for you.
Heebner has managed this fund since its beginning in 1994. (He also manages CGM Focus (CGMFX) and CGM Mutual (CGMMX). CGM Reality has returned an average of 14.3% annually over the past 15 years, according to Morningstar. That beats the next best fund in this category by almost six percentage points a year. At the end of the July quarter,the fund was up 1.93% for the year. That was 1.88 percentage points above the average for its category.
Heebner’s a trader so turnover in this fund is high–218% annually, Morningstar calculates–so the fund’s holdings are probably quite different from those reported in March. But at that point, CGM Realty’s top holdings included Simon Property Group (SPG), Alexandria Real Estate Equities (ARE), Federal Realty Investment Trust (FRT), Taubman Centers (TCO), Vornado Realty Trust (VNO), and AvalonBay Communities (AVB).
(Full disclosure: I own shares of CGM Realty in my personal portfolio. I will be adding more shares three days after this post appears on my blog.)
I bought CGMRX though Vanguard through Vanguard ($35). It’s down 6% in a week, but I think it has great upside potential.
The fund sounds like a great way to participate in the real estate market, which I have stayed out due to the amount of turmoil. Unfortunately, it is not widely available – see the attached link to the CGM web site to see brokerage availability. http://quicktake.morningstar.com/fundnet/purchase.aspx?symbol=cgmfx
why not just buy VNQ? same stuff, no fabu manager but good mix, not now, is way up maybe on a pullback. lots of CN reits out there, one good little one on my hot list is Calloway,
CWT.UN-TO, up a bit too but new malls, all have Walmarts in them in CN, lots of good stores, little vacancy. maybe LTC in US too. again, these have moved way up from lows like other stuff.
I buy it through Schwab where the commission/fee is $49.95. (Robbery.)
I had to open a CGM account to purchase shares last year, before it dropped the 46.8% Jim described. Scared to double down on it. Probably should.
Its a no go on ETRADE as well.
I bought this in my IRA at at Ameriprise almost 5 years ago. It is a great fund with an outstanding manager.
Hey Jim, there has been a lot of talk about selling off now and taking advantage of the recent run, but no actual sells on your part recently. Is it too early?
Yeah, I can’t buy through Fidelity either. “The mutual fund you requested to trade is an Advisor Fund and is not available for retail trading. For more information, contact a Fidelity Representative”
hope you don’t keep need to buy this through UBS, they don’t have an agreement with the fund.