Taking a Flyer on Real Estate

08/12/2009 1:43 pm EST

Focus: FUNDS

Jim Jubak

Founder and Editor, JubakPicks.com

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

The commercial real estate sector is in chaos. And the market is still collapsing, with delinquencies on commercial mortgages still climbing (see this recent post for more).

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 ultimately survive the storm.

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 volatile fund is for you.

Heebner has managed the fund since its beginning in 1994. (He also manages CGM Focus (CGMFX) and CGM Mutual (LOMMX).) CGM Realty 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, and turnover in this fund is high—21.8% 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 (NYSE: SPG), Alexandria Real Estate Equities (NYSE: ARE), Federal Realty Investment Trust (NYSE: FRT), Taubman Centers (NYSE: TCO), Vornado Realty Trust (NYSE: VNO), and AvalonBay Communities (NYSE: 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.)

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