Ken Heebner Moves into Financials Big Time

I cannot find the comment about Wells Fargo (WFC) [Jul 16: Wells Fargo Impresses Me] because it was in the "comments" section of one of the posts, hence not searchable, but I had theorized that the incredible strength in Wells Fargo the past few months [Oct 15: Wells Fargo Can Do No Wrong in Eyes of Stock Market] was because Heebner had moved into the stock and that sort of information gets passed along from one trading desk to another. That prediction came true - Wells is now Heebner's #1 position.

While his record has been awful of late, I still like to know where the brightest minds are going - he did not get stupid overnight. The market simply has rewarded nothing on the long side of late, and he overstayed his welcome in commodities this summer as did almost every major hedge fund and most individual investors playing that trade (hi, my name is Mark and I owned commodities 45 days too long). Looking at his old holdings from 6/30 he also owned a lot of REITs which obviously brought a lot of pain.

With Ken, he can change his whole portfolio in 90 days, and this data is from Sept 30th but my hunch from listening to his recent comments is he will stay in financials for a while to go. You basically have a government put, they can borrow dirt cheap, lend expensive - make the margin and then charge high fees to consumers - ah, perfect. The only fly of course is the continued writedowns but credit cards, autos, and consumer loans should not be as epic as mortgages in scale. I don't like the Citigroup (C) purchase myself but it is what it is - he effectively put 15% of his holdings into 3 of the 'Chosen 9' [Oct 13: US Reveals the Chosen 9] Obviously he has mostly abandoned commodities (who hasn't, the stocks go down 9 out of every 10 days!) :) on a relative basis, but showing his turnover, 4 of his top 5 positions from June 30th were completely gone by Sept 30th.

He has also adopted our 2 main "Pooring of American" plays - Walmart (WMT) and McDonalds (MCD) :) He has been a lot more positive on the US econony than I have the past year, but it sounds like he is coming around somewhat based on these type of purchases... still loves his Petrobras (PBR) (for good reason - even if the market hates it) Looking at the SEC filing, one move the story below neglects is a big move back into the 2 Brazilian banks Banco Bradesco (BBD) and Banco Ita (ITU). A bit early for me to consider emerging market banks but sometime middle of next year I think will be time... The only major healthcare purchase I see (which is my bull market) is Abbott Laboratories (ABT) which multiple readers have mentioned over the past few months...

• Kenneth Heebner, the fund manager who beat all peers last year by buying energy stocks and selling financials, reversed course in the third quarter, snapping up Citigroup Inc., Wells Fargo & Co. and Bank of America Corp.
• Heebner's Capital Growth Management LP, based in Boston, bought 15.4 million shares of Wells Fargo, 27 million shares of Citigroup and 15.6 million shares of Bank of America in the three months ended Sept. 30, according to a regulatory filing today. The combined stakes equal about 15 percent of the U.S.- listed stocks reported in the filing.
• The firm sold all its shares of Schlumberger Ltd., along with those of Freeport-McMoran Copper & Gold Inc., Peabody Energy Corp., and Consol Energy Inc. The four companies were four of the money manager's top five holdings as of June 30, Bloomberg data show.
• The $7.4 billion CGM Focus has dropped 46 percent this year, lagging behind 99 percent of rival funds, according to Bloomberg data.
• Nicknamed ``Bigfoot'' by industry professionals for his large and sudden trades, Heebner had almost half of the firm's portfolio in financial companies as of Sept. 30, Bloomberg data show. Wells Fargo is the largest holding owned by Capital Growth, while Citigroup and Bank of America rank third and fourth.
• Energy and materials companies accounted for 13 percent of Capital Growth's assets, the data show. The firm held 13 million shares of Petroleo Brasileiro SA, the Brazilian oil company. Petrobras is the firm's second-biggest holding.
• Heebner also purchased shares of Wal-Mart Stores Inc. and McDonald's Corp. in the quarter, as the companies drew cash- strapped customers looking for cheaper prices. Capital Growth bought 7.95 million shares of Wal-Mart, a new position, and 7.68 million shares of McDonald's.