Psst! Want to make some money on the collapse in commercial real estate? Here's a fund manager who knows how

08/12/2009 12:34 pm EST


Jim Jubak

Founder and Editor,

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.)

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