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Funds on a Hot Tin Roof

In a make-or-break year, some of these funds are breaking.

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It isn't pretty to see a fund in a nasty slump. Investors' anxiety levels go up and managers feel pressure to produce a turnaround. Since we're past the halfway point for 2012, I thought I'd check in on five once-strong funds that were struggling at the end of 2011. I looked for funds with very poor three-year returns at that point and then pulled their year-to-date returns through July 18. Let's take a look at these funds and what their performance this year tells us.

 CGM Focus (CGMFX)
The hardest hit of our five funds, it had a three-year annualized loss of 1.6% at the end of 2011, the worst of any large-growth fund in our database. Unfortunately, it has stayed in the cellar this year after a brief early rally. It has gained 0.6%, which places it in the bottom 2% of the category. With a turnover rate north of 400%, it's not easy to say exactly what has gone wrong, but it appears one problem has been a bet on a stronger economic recovery than has materialized. Manager Ken Heebner's superfast moves and focused portfolio make the fund a tough one to own. His unpredictable and uninformative shareholder letters mean that it is hard for people to understand how he's positioning the fund. A second issue is that Heebner has very little support and is past retirement age. The positive is that, despite awful recent results, Heebner does have a pretty good long-term record. Still, you have to take a huge leap of faith to buy this fund.

Russel Kinnel has a position in the following securities mentioned above: FAIRX. Find out about Morningstar’s editorial policies.

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