Bruce Berkowitz must be one happy man.
The press-shy president of Fairholme Capital Management has a huge stake in bailed-out insurance company American International Group
AIG currently represents a whopping 11% of Berkowitz's $20-billion-plus portfolio. Even more amazing, Berkowitz owns almost one-quarter (24%) of all AIG shares outstanding (that is, before the U.S. government converts its huge preferred shares in the company sometime next year).
Joseph La Perla, chief of Le Ferla Group, a unit of UBS Financial Services, and an investor in Berkowitz's portfolio, told CNBC that the Fairholme investment vehicle is heavily concentrated.
While some investors might shy away from such a concentrated portfolio, La Ferla explained that he likes this strategy -- because it reflects a strong conviction in the securities by the manager.
He estimates that at any given time the top 10 stocks of Berkowitz's fund represent at least 60% to 65% of the portfolio's total assets. La Ferla indicated that financial stocks tend to dominate the portfolio.
And no one can argue with Berkowitz's performance. So far in 2010, the Fairholme portfolio is up about 24.5%, soundly beating the 15% by the S&P 500 index.
Over the longer term, between 2000 and 2009, Fairholme gained 13.2%, versus a meager 0.95% for the S&P 500.
However, Berkowitz's second-biggest holding, Sears, gives La Ferla some concern, given that the stock has struggled mightily for the past five-plus years and analysts have little good to say about the company.
Then again, at one time in the not-too-distance past, the market was quite negative on AIG as well -- especially considering that just two years ago it received a government bailout in excess of $180 billion. In 2009, the company earned the public's wrath after it was revealed that it paid millions in bonuses to top executives.
However, now there are some concerns about AIG's performance in 2011, since the government has said it plans to sell off part of its stake in the company through one or more large public offerings.
At present, the U.S. Treasury holds shares of AIG Preferred stock, which, if, fully converted, would result in the government owning 92% of the company.
Some analysts are concerned that the government's planned offerings could put pressure on AIG's share price. UBS insurance analyst Andrew Kligerman has a $53 price target on AIG stock and a "neutral" rating on it.
The Motley Fool has a disclosure policy.