Q. Should I continue to hold shares of CGM Realty Fund?
K.C., via the Internet
A. Portfolio manager Ken Heebner’s agile mind is constantly working the market angles, leading to bold investment moves.
In light of the dramatic gains real estate funds have made, however, you must decide whether you feel confident about the near-term future. Also realize that this fund is different from most competitors that invest almost entirely in real estate investment trusts. Heebner can invest 20 percent of his portfolio in anything he wishes.
Through Monday, the $1.4 billion CGM Realty Fund (CGMRX) had a total return of 23 percent over the past 12 months to rank in the lowest one-fourth of the booming real estate fund category. But its three-year annualized return of 32 percent and five-year annualized return of 34 percent rank within the top 2 percent of its peers.
“Heebner is generally more right than wrong, but he can have explosive returns and then be really wrong,” said Laura Pavlenko Lutton, an analyst with Morningstar Inc. in Chicago. “In recent years he did well with home builders and then energy, and currently has one-third of his portfolio in hotels.”
The experienced Heebner aggressively looks for companies based on price and growth rates. Turnover is often quite high when he finds new opportunities. Largest holdings are SL Green Realty, LaSalle Hotel Properties, Southern Peru Copper, BHP Billiton Ltd. and Jones Lang LaSalle.
“If there’s a broad market correction in real estate, Heebner is not going to be able to hide from it even though he has 20 percent of portfolio outside the field,” Pavlenko Lutton said. “I’m not making predictions, but all good things come to an end.”
This “no-load” fund requires a $2,500 minimum initial investment and an annual expense ratio of 0.92 percent.
Q. What does it mean when a company refers to its “pro forma” financial results?
F.P., via the Internet
A. That Latin term, meaning “for the sake of form,” indicates additional financial information being provided by a company that may not comply with generally accepted accounting principles, or GAAP. It may, for example, not include some of the usual accounting components.
GAAP is a combination of standards set by policy boards and the commonly accepted ways of reporting accounting information.
Pro forma figures can be useful when a merger, acquisition, sale or other change occurs in the business because they help provide a more complete picture of a company’s real potential. They should, however, be strictly deemed a sidelight to the regular earnings and never looked at as the primary numbers for investors.
Some companies have gone totally overboard promoting their pro forma earnings over actual earnings whenever it makes their results look better.
“The problem is that a lot of what pro forma considers to be non-recurring items seem to show up every quarter or every year,” said Paul Nolte, investment director of Hinsdale Associates in Hinsdale. “There are limitations to GAAP, too, but at least it’s consistent from period to period.”
———-
More Top Picks Bookshelve
Andrew Leckey is a Tribune Media Services columnist. E-mail him at [email protected].