At The Motley Fool, we understand that it often pays to zig when the rest of Wall Street zags. Like us, hedge funds rarely move in lockstep with the broader market. By tracking these little-followed funds' buy and sell decisions, we can often gain valuable insights into opportunities the market might be missing.
Every quarter, any fund managers overseeing more than $100 million must publicly disclose their quarter-end holdings in the Securities and Exchange Commission's Form 13-F. It lists all U.S.-traded securities the fund's manager held at the end of the quarter. Although the form doesn't disclose short positions or intraquarter trades, it can illuminate long stock bets.
To better decipher this 13-F data, we turned to Motley Fool partner AlphaClone, a research and investment-management firm that develops investment strategies based on hedge funds' public disclosures.
Meet Fairholme Capital Management
Bruce Berkowitz is the founder of Fairholme Capital Management. Fairholme's mutual funds invest in a focused portfolio of equity and fixed-income securities. The total market value of Fairholme Capital Management's disclosed equity holdings as of March 31 -- the latest quarter for which data is available -- was $14.4 billion across 28 holdings.
Why should you care? Because according to AlphaClone's backtest simulation, if you'd invested in Fairholme Capital's 20 top holdings as they were disclosed publicly each quarter, you would have earned a total return of 150.1% between January 2000 and now, versus just 7.1% for the S&P 500.
The fund's 10 largest positions (by value) and associated share-count changes as of March 31 were:
- American International Group (NYSE: AIG ) -- reduced 0.2%
- Sears Holdings (Nasdaq: SHLD ) -- increased 9.4%
- Bank of America (NYSE: BAC ) -- increased 0.6%
- Citigroup (NYSE: C ) -- increased 9.0%
- Morgan Stanley (NYSE: MS ) -- increased 0.8%
- Goldman Sachs (NYSE: GS ) -- increased 13.8%
- Regions Financial (NYSE: RF ) -- reduced 0.3%
- Brookfield Asset Management (NYSE: BAM ) -- new
- CIT Group (NYSE: CIT ) -- reduced 0.7%
- Leucadia National (NYSE: LUK ) -- reduced 0.9%
Outside the top 10 holdings:
- Rising Positions: The fund increased its positions in Berkshire Hathaway.
- Falling Positions: The fund reduced its exposure to AT&T and Verizon.
- Eliminated Positions: During the quarter, the fund sold out of several stock positions, including General Electric and Wellcare Health.
Selected Q1 2011 commentary
Fairholme Capital has a portfolio with a huge concentration in financial stocks, with services companies making up most of the rest of the fund's assets. Here's where the firm is winning and losing, and making new bets, at the moment:
- Current winner: Leucadia National did well, rising 28% in the first quarter. The stock comprises fully 4.9% of the total portfolio.
- Current loser: AIG fell 27% during the quarter. It's Berkowitz's top holding, making up 10.8% of the entire portfolio.
- New bets: The biggest new additions were Brookfield Asset Management and Cisco Systems, making up 6.2% and 4.3% of the total portfolio.
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.