Fairholme Fund Makes Big Bet on General Growth Properties, AIG, Goldman Sachs, Citigroup; Releases Shareholder Letter
Bruce Berkowitz of Fairholme Fund just released his shareholder letter. Many shareholders are concerned about the large positions that Fairholme Fund with financials. However, he did not discuss much about those.
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These are what he wrote in the shareholder letter:
The Fairholme Fund earned 0.7% in the first six months of 2010 while the S&P 500 Index (“S&P 500”) lost 6.7%. Since inception, the Fund is up 255.4%, which compares favorably to the S&P 500’s loss of 14.8%. A $1 million investment in the Fund when it started on December 29, 1999 would be worth $3,554,438 at June 30, 2010 compared to $851,913 for a like investment in the S&P 500.
The Income Fund earned 3.4% with an average estimated maturity of less than one year in its first six months of life while the Barclays Capital U.S. Aggregate Bond Index earned 5.3% with an average maturity of 6.5 years.
Over one-half of The Fairholme Fund’s assets are invested in securities of mostly hated financial services and real estate related companies. After all, “there is no job growth without economic growth; no economic growth without access to credit; no access to credit without a stable, functioning financial system.” Financials tend to lead markets into and then out of recessions followed by asset deflation and then inflation. Never being 100% certain as to events and timing, approximately 20% of the Fund’s assets are in relatively, short-maturity corporate debt and cash equivalents
Over one-third of The Fairholme Focused Income Fund is invested in short-term credits of American International Group, Inc. (“AIG”), General Growth Properties, Inc. (“GGP”) and others that are perceived to be or are in actual financial stress. Underlying equities lead us to believe that all are “money good.” Nearly two-thirds of the Fund is invested in cash and what we consider to be cash equivalents. You should also note our large and growing debt and equity holdings of AIG and GGP. Like their industry brethren, both were in critical condition from last year’s credit freeze and both appear to be thawing from near-death experiences. We believe a moderate climate will allow AIG to repay U.S. taxpayers and GGP to emerge from its self-induced bankruptcy. Further, Fairholme Funds has agreed to buy new GGP trust shares, subject to numerous terms and conditions.
Portfolios are positioned for today’s nascent recovery with its fits and starts. Don’t Lose remains Rule #1 as we strive to be greedy when most remain fearful about the future.
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American International Group, Inc. (AIG, Financial) 10.5%
Sears Holdings Corp. (SHLD) 7.7%
The Goldman Sachs Group, Inc. (GS, Financial) 5.4%
Citigroup, Inc. (C, Financial) 5.4%
For the complete list of equity holdings of the fund, go to: http://www.gurufocus.com/holdings.php?GuruName=Fairholme+Fund
Bruce Berkowitz of Fairholme Fund just released his shareholder letter. Many shareholders are concerned about the large positions that Fairholme Fund with financials. However, he did not discuss much about those.
*****
These are what he wrote in the shareholder letter:
The Fairholme Fund earned 0.7% in the first six months of 2010 while the S&P 500 Index (“S&P 500”) lost 6.7%. Since inception, the Fund is up 255.4%, which compares favorably to the S&P 500’s loss of 14.8%. A $1 million investment in the Fund when it started on December 29, 1999 would be worth $3,554,438 at June 30, 2010 compared to $851,913 for a like investment in the S&P 500.
The Income Fund earned 3.4% with an average estimated maturity of less than one year in its first six months of life while the Barclays Capital U.S. Aggregate Bond Index earned 5.3% with an average maturity of 6.5 years.
Over one-half of The Fairholme Fund’s assets are invested in securities of mostly hated financial services and real estate related companies. After all, “there is no job growth without economic growth; no economic growth without access to credit; no access to credit without a stable, functioning financial system.” Financials tend to lead markets into and then out of recessions followed by asset deflation and then inflation. Never being 100% certain as to events and timing, approximately 20% of the Fund’s assets are in relatively, short-maturity corporate debt and cash equivalents
Over one-third of The Fairholme Focused Income Fund is invested in short-term credits of American International Group, Inc. (“AIG”), General Growth Properties, Inc. (“GGP”) and others that are perceived to be or are in actual financial stress. Underlying equities lead us to believe that all are “money good.” Nearly two-thirds of the Fund is invested in cash and what we consider to be cash equivalents. You should also note our large and growing debt and equity holdings of AIG and GGP. Like their industry brethren, both were in critical condition from last year’s credit freeze and both appear to be thawing from near-death experiences. We believe a moderate climate will allow AIG to repay U.S. taxpayers and GGP to emerge from its self-induced bankruptcy. Further, Fairholme Funds has agreed to buy new GGP trust shares, subject to numerous terms and conditions.
Portfolios are positioned for today’s nascent recovery with its fits and starts. Don’t Lose remains Rule #1 as we strive to be greedy when most remain fearful about the future.
******
This is the sector weightings changes of Fairholme Fund's portfolio:
| Industry | 2010-02-28 | 2010-05-31 |
| Financials | 45.8% | 60.3% |
| Consumer Services | 10.9% | 8.9% |
| Health Care | 1.4% | 1.2% |
| Industrials | 5.5% | 4.1% |
Top Five Holdings by Issuer:
General Growth Properties, Inc (GGP, Financial) 13.1%American International Group, Inc. (AIG, Financial) 10.5%
Sears Holdings Corp. (SHLD) 7.7%
The Goldman Sachs Group, Inc. (GS, Financial) 5.4%
Citigroup, Inc. (C, Financial) 5.4%
For the complete list of equity holdings of the fund, go to: http://www.gurufocus.com/holdings.php?GuruName=Fairholme+Fund
