Founded in 1999 and based in Miami, Fla., The Fairholme Fund has $7.9 billion in assets under management and has produced a 10.32% annualized 10-year return.
Berkowitz’s recognition is no doubt due to his fund’s come back this year. After losing 32.42% in its worst year of performance in 2011, the fund has rebounded 36.8% year to date. The volatility was due to massive, early bets on some of the companies left in the worst shape by the financial crisis, such as AIG (AIG), Bank of America (BAC) and Citigroup (C). Most of these stocks began to rebound this year.
Berkowitz spent a lot of time last year explaining his value-based reasons for investing in the ramshackle financial companies. Their balance sheets appeared so difficult to analyze and macro trends seemed so against them that most investors steered clear.
However, Berkowitz believed in the long-term vitality of the American financial sector and found the fundamentals and rock-bottom valuations appealing.
The investor, whose fund’s motto is “Ignore the crowd,” gave an interview with his company as redemptions were mounting in February 2012 in which he said, “It all looks great. The rest of the investment world has to start to be convinced that these are valuable franchises that are going to make money once they clear up the sort of one-time fixable problems they had from sort of the irrational exuberance of home ownership.”
During the down period, GuruFocus published an article, “Though It Hurts, Bruce Berkowitz Is No Bill Miller,” contrasting Berkowitz’s approach with others who have taken big bets and faced permanent, career-ending loss of capital.
Berkowitz also posted several case studies explaining his detailed theses on two of his prominent holdings, Bank of America and AIG.
As the financial sector began to heal in 2012, it was reflected in the price of stocks – the Financial Select Sector SPDR (XLF) increased 31% over the past year, more than doubling from its 2009 lows. It also catapulted Berkowitz’s fund to the top-performing percentile of mutual funds this year.
See financial Guru of the Year 2012 Bruce Berkowitz’s stock portfolio here. Also check out the undervalued stocks, top growth companies and high yield stocks of Warren Buffett.