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Summary Natixis Asset Management, the fund’s distributor, has recently announced the closure of the CGM Advisor Targeted Equity Fund to new investors, and plans to liquidate the fund on 2/17/2016. The fund is managed by CGM’s Kenneth Heebner and has been active since 1968. Fund has significantly underperformed the market over the last 8 to 10 years. One of the oldest mutual funds is about to shut the doors. Natixis has just sent out a letter to financial advisor informing them of the board’s decision to liquidate the CGM Advisor Targeted Equity Fund (MUTF: NEFGX ) (MUTF: NEBGX ) (MUTF: NEGCX ) (MUTF: NEGYX ) on February 17th, 2016. As per the letter… The Board considered a number of factors in making this decision. Natixis Funds are managed solely by firms in which Natixis Global Asset Management has an ownership interest. In early January 2016 Natixis will no longer hold any ownership interest in Capital Growth Management (CGM). The Board determined that, since there is no other manager or fund within the Natixis Funds complex that has a similar investment style, it would not be in the best interest of shareholders to have another portfolio manager assume responsibility for managing the Fund or to merge it into another fund. If you are currently an investor, what are you to do? The Basics Originally launched in 1968, the fund has been managed over the last 39 years by Kenneth Heebner. Fund Basics : Sponsor: Natixis Global Asset Management Managers: Sub-Advised by CGM, Kenneth Heebner AUM: $448.53 Million across share classes Historical Style : Large Blend Investment Objectives: Seeks long-term growth of capital through investment in equity securities of companies whose earnings are expected to grow at a faster rate than that of the overall United States economy. Number of Holdings: 21 Current Yield: 0%, Annual Distributions Inception Date: 11-27-1968 Fees: A Share : 1.15%, I Share: .89% Source: Natixis Global Asset Management The fund’s special sauce is twofold. First, the fund is concentrated and typically holds between 20 and 30 securities. The reasoning for this being, if you hold 100 names or more and many funds do, you might as well own an index fund as you are in a quasi index fund with higher fees. As a concentrated fund, you are able to make specific investment bets. The second part to the special sauce is selecting “aggressive large-cap” holdings with a competitive long-term track record. The Numbers Pre 2007 the fund was a shining example that active management can work. 2007 in particular was a stand out year where the fund returned 34.42%, beating the S&P 500 by over 28%. Yes, the fund was concentrated and had a higher beta, it certainly brought alpha to the portfolio. Unfortunately, since 2008, the fund has been mediocre at best. (click to enlarge) Source: YCharts Even over the last 10 years, the fund has still not gotten its mojo back. (click to enlarge) Source: YCharts Putting this into perspective, we can take a look at the Risk Reward Scatterplot and MPT statistics for the fund compared to the S&P 500. (click to enlarge) Source: Morningstar While the fund has returned positive numbers, it has done so with both a higher beta to the market, and a lower alpha, not keeping up with the market. This trend holds true for both the 3, 5 and 10 year numbers. Our Take & Bottom Line This was a great fund Pre 2008, however during the great financial melt UP inspired by zero interest rate policy, active managers have been left behind as the entire markets went up. All you heard for the last 8 years has been index funds, ETFs, etc. Only this year have you started seeing a return to good active managers in a market that has gone nowhere for the year. The question is…. what does the future hold? Unfortunately, no one knows how CGM will manage in the future. The fund has typically had very active turnover in the portfolio with very little to show for it. It would not be prudent to invest in the funds right now, so this discussion focuses for those that are current investors. Even though Natixis will be liquidating the funds, CGM does have 3 mutual funds that are no load funds, as opposed to the Natixis CGM funds that were sold primarily through financial advisors. For investors who still believe in CGM and Kenneth Heebner, your choice would be to invest in the CGM Focus Fund (MUTF: CGMFX ) which mimics the Natixis fund very well. Unfortunately, the performance has been just as tepid. Perhaps this fund closing is just an opportunity to take a moment and reevaluate your options. In any case, it would be prudent to process your sell order now, rather than wait for the fund liquidation to happen by itself and hope to avoid any other special distributions & 1099s.