Here's What Bruce Berkowitz Bought and Sold Last Quarter

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:

  1. American International Group (NYSE: AIG  ) -- reduced 0.2%
  2. Sears Holdings (Nasdaq: SHLD  ) -- increased 9.4%
  3. Bank of America (NYSE: BAC  ) -- increased 0.6%
  4. Citigroup (NYSE: C  ) -- increased 9.0%
  5. Morgan Stanley (NYSE: MS  ) -- increased 0.8%
  6. Goldman Sachs (NYSE: GS  ) -- increased 13.8%
  7. Regions Financial (NYSE: RF  ) -- reduced 0.3%
  8. Brookfield Asset Management (NYSE: BAM  ) -- new
  9. CIT Group (NYSE: CIT  ) -- reduced 0.7%
  10. 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.

The Motley Fool owns shares of Berkshire Hathaway and Bank of America, has created a bull call spread position on Cisco Systems, and has shorted shares of Bank of America in a separate account. Motley Fool newsletter services have recommended buying shares of Leucadia, Brookfield Asset Management, AT&T, Cisco, and Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 14, 2011, at 5:11 PM, michjksn wrote:

    Bruce Berkowitz is a smart guy. Like he, I too have 'premature accumulation' of the bank stocks, most notably Citibank and BAC, at these ridiculous levels. Once this concerted effort to drive financials down and eradicate retail holders is over, the banks will lead this nation out of it's current Obama/governmental induced malaise/nightmare and be the top performing sector by 2011's end. Stay tuned.

  • Report this Comment On June 14, 2011, at 5:38 PM, NajdorfSicilian wrote:

    Something large seems to be missing...rhymes with Paint Moe....

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