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At The Motley Fool, we understand that it often pays to zig when Wall Street zags, but that doesn't mean that we don't pay attention to what leading fund managers are buying and selling. And hedge funds, which are rarely in lockstep with the broader market, can be a particularly valuable source of insight.
Every quarter, fund managers overseeing more than $100 million must disclose their quarter-end holdings publicly by filing Securities and Exchange Commission Form 13-F. The form lists all U.S.-traded securities the manager held at the end of the quarter. Although the form doesn't disclose the manager's short positions or intraquarter trades, it can shine a bright light on his or her long stock bets. To help us make use of 13-F data, we turned to Motley Fool partner AlphaClone, a research and investment-management firm that tracks hedge-fund public disclosures and develops investment strategies based on them.
Q4 2010 update
Bruce Berkowitz founded Fairholme Capital Management in 1997. The firm invests in the public equity and fixed income, distressed or defaulted bonds, and value stocks for its affiliated mutual funds, institutional managed accounts, and private funds. The total market value of Fairholme Capital Management's disclosed equity holdings as of Dec. 31, 2010 -- the latest quarter for which data is available -- was $15.8 billion across 24 holdings.
The fund's 10 largest positions (shares held) and associated changes as of Dec. 31 were:
- AIG (NYSE: AIG ) -- increased 34.6%
- General Growth Properties (NYSE: GGP ) -- new
- Bank of America (NYSE: BAC ) -- increased 30.4%
- Citigroup (NYSE: C ) -- reduced 1.8%
- Sears Holdings (Nasdaq: SHLD ) -- increased 1.8%
- Morgan Stanley (NYSE: MS ) -- increased 6.2%
- Goldman Sachs (NYSE: GS ) -- reduced 2.0%
- CIT Group -- increased 29.5%
- Regions Financial -- increased 73.5%
- St. Joe -- increased 0.1%
Outside the top 10 holdings, the fund also increased its positions in Berkshire Hathaway and MBIA while reducing its exposure to Humana and Wellcare Health. During the quarter, the fund sold out of two stock positions: AmeriCredit and TAL International Group.
Morningstar named Berkowitz fund manager of the decade last year, so he's worth watching. According to AlphaClone's back-test simulation, anyone who invested in Fairholme Capital Management's 10 largest holdings at the time they were disclosed publicly each quarter would have returned 237.5% since 2000, versus 11.3% for the S&P 500 (including dividends) as of March 31. Here's a chart showing AlphaClone's back-test model:
The strategy above buys and sells its holdings each quarter, five trading days after the SEC's filing window for Form 13-F closes.
Selected Q4 2010 commentary
Fairholme has a concentrated portfolio, with 65.9% of its assets tied up in the financial sector. An additional 26.3% comes from services, while conglomerates (5.4%) and capital goods (2.3%) round out the group. Here's where the firm is winning and losing currently and making new bets:
- Current winner: AIG did extremely well, increasing 47% in the fourth quarter of the past year. The stock comprises fully 16.2% of the total portfolio.
- Current loser: St. Joe fell 12% in price in the fourth quarter of 2010. More recently, though, the stock has turned around, as Berkowitz became the chairman of the board about a month ago to help the ailing real estate development company recover.
- New bets: The largest new addition, General Growth Properties, comprises 11.1% of the total portfolio. General Growth is a real estate investment trust. During the quarter, the fund also started new positions in AT&T, Verizon, Banco Santander, and Royal Dutch Shell.
So there you have it -- the blow-by-blow of Fairholme Capital Management's latest moves. Tell us what you think in the comments section below.
Company data provided by AlphaClone LLC, a San Francisco-based research and investment-management firm that tracks hedge-fund public disclosures. For more information on the firm's investment approach, visit AlphaClone.
IMPORTANT DISCLOSURES FOR BACKTEST PERFORMANCE RESULTS
Backtesting is the process of evaluating a core strategy by applying it to historical data. Backtested performance results are provided for purposes of illustrating historical performance had a core strategy had been available during the relevant period. Backtested performance results are hypothetical and have inherent limitations. AlphaClone makes no representation that any core strategy will achieve performance similar to any backtested performance results. Actual results could differ materially from backtested performance, and future results could differ materially from backtested performance. Past performance is no indication or guarantee of future results.