Top funds may have lost $4 billion on Freddie, Fannie this week

BOSTON (Reuters) - Some of the best known U.S. fund firms probably suffered significant losses in this week's meltdown in the stocks of mortgage finance agencies Fannie Mae (FNM.N) and Freddie Mac (FRE.N).

Among the casualties may be the one-time star stock-picker Bill Miller at Legg Mason (LM.N), whose funds have owned a series of companies that have been battered by the credit crisis and the weakening economy.

Others include Capital Group, including its Growth Fund of America, which is the largest U.S. fund, AllianceBernstein (AB.N), and Fidelity Investments.

Altogether, the four fund groups may have seen a decline of as much as $4 billion in the value of their holdings in the two agencies in the past week. None of the fund groups would comment.

The precise size of the losses is difficult to pinpoint because the fund groups have not reported their current holdings and the estimates are based on their last disclosures.

Fannie and Freddie's stock drops and the overall market weakness could lead to more outflows and hurt returns at mutual funds which owned a large chunk of these holdings.

The stocks plunged this week on worries about their capital positions due to a deteriorating housing market. Fannie fell 45.4 percent while Freddie lost 46.5 percent. The worries over the two have cast a pall on financials and the broader U.S. stock market.

"That certainly has impacted Miller's fund. At Growth Fund of America, the damage has been limited," said Greg Carlson, a mutual fund analyst at Morningstar.

Miller's Legg Mason Capital Management, a unit of Legg Mason, owned 50.2 million Freddie shares as of end-March, which was up 71 percent from end-December, Reuters data showed. He is the only manager to have beaten the S&P 500 index for 15 straight years till 2006 through the $12.2 billion Value Trust fund, but performance has been poor subsequently.

The Value Trust itself owned 16.9 million Freddie shares as of end-March, the data showed. The fund, which has several financial sector holdings, was down 4.4 percent in July through Thursday's close against the S&P 500's negative 2 percent return, according to Lipper data.

It was down 31.8 percent in 2008 through Thursday's close compared with the 13.7 percent negative returns of the S&P index. Legg's equity products, including Miller's funds, had seen combined outflows of $27.6 billion for the quarters ended December 31 and March 31.

"I would expect it (outflows) to continue given the bad performance over the last week," said Morningstar's Carlson.

Reflecting the concerns, Legg Mason shares closed down 7.9 percent at $33.49 on Friday. AllianceBernstein shares closed 4.2 percent lower at $46.18.

"Financials are getting killed. The market's getting crushed and they are getting beat up more," D.J. Neiman, an analyst at William Blair & Co, said of asset manager stocks.

The New York Times said on Friday the U.S. government was considering a plan to put the two firms into a conservatorship if their problems worsened, but the Bush administration in later comments gave no hint that such a plan was being considered.

Capital Group's funds owned 200 million Fannie shares as of end-March, according to Reuters data, making Capital Fannie's biggest institutional shareholder. A week ago, these would have been worth $3.76 billion, but now they would be worth about $2 billion.

AllianceBernstein owned 132.8 million shares as of end-May, and their value could have dropped by $1.1 billion over the past week. Fidelity owned 46.2 million shares of Fannie at end-March.

Capital was also the biggest institutional holder of Freddie, owning 96.1 million shares as of end-March. These would be worth $1.39 billion a week ago, but $745 million now. AllianceBernstein owned 41.9 million shares as at end-March.

Privately owned Capital Group's $180 billion Growth Fund of America owned 52.2 million shares of Fannie and 27.8 million shares of Freddie as of end-February, the data show.

The fund is down 3.25 percent in July through Thursday's close against a negative 2 percent return of the S&P 500 index, as per Lipper data. Since January 1, it has lost 9.76 percent against the S&P 500's negative 13.7 percent return.

Capital, privately owned Fidelity and Legg declined to comment on the drop in Freddie's and Fannie's share price, or on the current level of their holdings. AllianceBernstein was not immediately available for comment.

(Editing by Leslie Gevirtz)