Stocks Owned By Both Yacktman and Berkowitz: Bank of America, Leucadia National, Berkshire Hathaway

The Strange Dichotomy of Fairholme and Yacktman


As you may recall from the first article we published this year, both Fairholme and Yacktman have been generating market-beating performance over much of the last ten years by running fairly concentrated portfolios. In fact, looking at their performance over the last 3-, 5-, and 10-year time periods, one could assume that their investment philosophies were highly correlated (especially over the last decade, where the two funds' returns are almost identical). And we could go even so far as to note that what we said earlier this article about Yacktman--that the key to their success has been steering clear of investing methods aimed at mimicking benchmark returns, preferring to rely on bottom-up individual security analysis to purchase stocks, and hold them until better opportunities become available or they determine they've made a mistake--could easily be said about Fairholme.


But a quick look at their holdings over the last two years demonstrates the different approaches these top managers have taken to generate market-beating returns. Bruce Berkowitz's Fairholme fund, for example, ran a fairly concentrated portfolio during 2009, with just two stocks—Pfizer (PFE) and Sears Holdings (SHLD)--accounting for close to one third of the fund's equity holdings. Contrast that with 2010, where the fund's top four holdings American International Group (AIG), Sears, Goldman Sachs (GS), and Citigroup (C)--accounted for about 35% of Fairholme's stock portfolio. In the interim, Berkowitz has made a highly publicized shift into financial services, which made up more than three quarters of the fund's stock portfolio at the end of the most recent period. Compare this to the end of 2009, when financial services accounted for just over one third of Fairholme's stock holdings, with health care (25%), business services (13%) and consumer services (13%) accounting for significant portions.


This is not too dissimilar from the bets Yacktman was making at the end of 2009, with close to one third of its stock holdings in consumer goods stocks, another quarter in media firms, and health care (14%) and financial services (10%) representing other major sector holdings. Whereas Fairholme went big on financial services, Yacktman cut its exposure even further (to less than 5% of its equity holdings). This may have cost the fund some outperformance earlier in the year, but certainly hasn't hurt it since the start of the European credit crisis. By the end of the third quarter, Yacktman had increased its stake in health care (22%), while trimming its commitment to consumer goods (27%), and media (20%). The fund's top ten holdings accounted for 62% of its total stock portfolio, in contrast to Fairholme, which had 73% of its stock portfolio committed to its top ten holdings at the end of the most recent period.