| BOSTON, April 4
BOSTON, April 4 Many of 2011's trailing money
managers bounced back in the first quarter thanks to the stock
market's big rally. But few came back quite as strongly as
Fairholme Fund's Bruce Berkowitz, who is already within sight of
recovering all of last year's loss.
In 2011, just a year after being named Morningstar's stock
fund manager of the decade, Berkowitz turned in a horrible
performance, as big bets on financial stocks like American
International Group and Bank of America cratered
and his fund lost 32 percent, even worse than its 2008 decline
of 30 percent.
But the Fairholme Fund jumped 31 percent in the
first quarter of 2012, outperforming the Standard & Poor's 500
by almost 19 percentage points and the average return of similar
funds by over 20 points, according to Morningstar data.
And that gave the fund's ranking a bizarre twist. After
turning in the worst 2011 performance of any large cap value
fund tracked by Morningstar, the research firm's 100th
percentile rank, Fairholme ranked first for all such funds in
the first quarter, Morningstar's 1st percentile.
Berkowitz's style of investing large amounts in a few
positions or sectors has always made the fund potentially more
volatile, Morningstar analyst Kevin McDevitt said. "It's almost
surprising he didn't have a year like 2011 sooner," McDevitt
said. "But he showed the conviction to stick with his positions
and it has really paid off so far this year."
The Fairholme Fund's net asset value share price, which
ended the year at $23.15, hit $30.36 on March 30. Berkowitz
still needs to regain another $3.90, or 13 percent, to get back
to $34.26, the price where the shares ended 2010 adjusted for
The percentage gain represented a lot fewer actual dollars
this year. In addition to the big loss, investors yanked $6.6
billion out in 2011, according to data from Lipper, a Thomson
Reuters company. That has left Berkowitz with $8 billion instead
of the $20 billion he had a year ago.
Unlike many of his peers who stumbled, however, Berkowitz
went into 2012 not just with many of the same holdings but
concentrated even further and doubled down on several.
Shares of bailed-out insurance giant AIG made up 26 percent
of the entire fund at the end of November, Fairholme's most
recent disclosure, almost three times the allocation of a year
earlier. AIG, up more than 30 percent in the first quarter,
gained another 2 percent on Wednesday on news it may do a public
offering for its International Lease Finance Corp subsidiary.
The weighting of Fairholme Fund's second-largest holding,
former AIG Asian subsidiary AIA Group, more than
doubled to 11 percent. Aside from 9 percent in cash and 11
percent in retailer Sears Holdings, virtually all of
the remainder of the fund is in financial companies of one sort
or another, ranging from insurers like AIG to real estate
investment trusts like the St. Joe Co.
Berkowitz declined to comment for this story but has spoken
in public several times in recent months explaining his
strategy. The operating performance of financial companies the
fund owned improved last year even as their stock prices dropped
further, he noted. Investors ignored strong earnings growth
potential because of "fixable problems," he said, according to
the transcript of a conference call with investors held on Feb.
"I've seen this play before. I've seen the cycle of
financials," Berkowitz, 53, said. "That's the one good thing
about old age, you've seen it before and you know how it plays
St. Joe, where Berkowitz stepped in as chairman last March,
has been another loser turned winner. Last year, the stock
plummeted 33 percent as short sellers, including hedge fund
manager David Einhorn, continued to press their critique of the
Florida REIT's asset value and strategy. But the stock got a
huge bump last month after Berkowitz said he would bring in new
management. The shares are up 22 percent so far in 2012.
GOOD FOR MANY
To be sure, the first quarter was a good one for stock fund
managers, as 57 percent of actively managed stock funds beat the
Russell 1000 index, according to a Bank of America Merrill Lynch
report. Value-oriented managers did even better, as 72 percent
beat their benchmark. Berkowitz far outdistanced the average
value fund's outperformance of just under 1 percentage point.
Some other well-known managers who stumbled in 2011 have not
recovered as much as Berkowitz. Ken Heebner's CGM Focus Fund
, which lost 26 percent last year, was up 16 percent in
the first quarter. And the Janus Overseas Fund
managed by Brent Lynn gained 20 percent after a 33 percent loss