Fairholme Capital’s 3Q14 portfolio highlights



Fairholme Capital

Founded by Bruce Berkowitz in 1997, Fairholme Capital Management is a pooled investment vehicle with close to $7.8 billion of assets under management. The fund employs long-term, value-oriented investing. It has a proven track record for investing in undervalued stocks (those that trade below their fair intrinsic value) and holds onto such securities until their market prices evidence a correction toward their fair value.

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The company came out with its 13F for 3Q14 in November, and it revealed some interesting results. The fund’s portfolio size decreased by a whopping $2.1 billion over the last quarter. While some of its positions were exited in the quarter and some were reduced, the decline in its portfolio value was mainly due to the disclosure limits for its holdings in government-sponsored enterprises Fannie Mae (FNMA) and Freddie Mac (FMCC). We’ll examine what caused this reporting change later in the series. First, we’ll take a look at some of the key highlights of the fund for 3Q14.


Fund highlights

During 3Q14, Fairholme Capital Management added a new position in Chesapeake Energy Corporation (CHK) worth $12.3 million, or 0.16% of the portfolio. The fund also purchased small stakes in oil majors BP Plc (BP) and New York Community Bancorp (NYCB), each representing about 0.03% of the portfolio. It increased its position in Sears Holdings Corporation (SHLD) by more than 800,000 shares despite the company’s ongoing crisis.

Exits during 3Q14 included positions in Fannie Mae (FNMA), Freddie Mac (FMCC), Genworth Financial (GNW), Reynolds American, Inc. (RAI), and Altria Group (MO). It reduced its positions in American International Group (AIG), St. Joe Company (JOE), Lands’ End (LE), Leucadia National Corporation (LUK), and Berkshire Hathaway (BRK). The above table summarizes the major changes in the portfolio during 3Q14.

The above table shows Fairholme’s top ten holdings, which form roughly 99.3% of its portfolio. American International Group (AIG) and Bank of America (BAC) continue to form the majority of the fund’s holdings at 56.42% and 22.42%, respectively.

The next part of this series will highlight the fund’s new position in Chesapeake Energy Corporation (CHK).


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