No new buys for Fairholme Fund
Bruce Berkowitz's financial fund just sells in the first quarter.
This year has been a vindication for the money manager, as he ranks in the top 1% of performance year-to-date with a return of 26.18%, after ranking in the bottom 99% last year.
Berkowitz has produced 8.45% annualized returns over the last 10 years, and a continued recovery of the U.S. financial system will push his fund higher for the long-term gains toward which he aimed his investments.
Fairholme Fund's redemptions were probably near $1 billion in the first quarter if his total portfolio value grew approximately $1 billion and his total assets under management remained about the same. The fund has about $8 billion in assets under management.
His top holdings are still American International Group (AIG), AIA Group (AAIGF), Sears Holdings (SHLD), CIT Group (CIT) and Bank of America (BAC).
In the first quarter, he reduced AIG and Berkshire Hathaway A (BRK.A), and sold out of Berkshire Hathaway B (BRK.B), Citigroup (C) and China Pacific Insurance (CHPXF).
Berkowitz sold 0.34% of his holding of AIG, and now owns 4.44% of shares outstanding. AIG is the multinational insurance corporation that required a $182.5 billion bailout from the federal government during the 2008 financial crisis. From the second quarter of 2010 to the second quarter of 2011, Berkowitz amassed a position of 94,832,939 shares in the company.
In 2011, AIG posted its second profitable year and more than $1.2 billion in earnings, as revenue fell for the third year running. The company also repaid its debt to the Federal Reserve Bank of New York in full in 2011 and has no debt remaining to the U.S. government. Year-to-date, the stock has increased 41.5%, greatly helping Berkowitz’s performance as his largest holding.
Berkowitz has an in-depth thesis on AIG here.
He also reduced his holding of Berkshire Hathaway A shares by 36.95%. He had acquired his shares at an average price of $101,850 and today shares opened at $119,900 after increasing 4.4% year to date.
Berkowitz sold all of his 5,180,480 shares in Citigroup in the first quarter, after reducing 15,606,080 shares in the previous quarter. He bought the majority of his shares from the fourth quarter of 2009 to the third quarter of 2010 at average prices ranging from $35.70 to $47.30. The stock opened at $34.04 Wednesday.
Citigroup's first-quarter net income fell 2%, and it said that more than a quarter of its balance sheet was comprised of cash or liquid securities. The bank is also planning to resubmit plans to the Federal Reserve that could result in a higher dividend. In March, the Fed rejected its dividend increase request, saying it was concerned the bank's cash reserves were not high enough to withstand the most severe level economic crisis.
Berkowitz eliminated his 109,922,300-share position in China Pacific Insurance Group, the fourth-largest life insurer in the country. China Pacific Insurance’s stock has traded in a 52-week range of $2.58 to $4.51. The insurer had a difficult first quarter as premium incomes fell 7.5% and first-quarter profit fell 29.4% to 5.63 billion yuan ($892.62 million) on lower investment returns and weaker sales of insurance policies. The previous quarter, its profit fell a company-record 82%.
Finally, he closed his position in Berkshire Hathaway B shares. He owned 3,438,350 shares in the fourth quarter after making reductions in the third and fourth quarters.
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The solid report comes a month after the retailer closed all of its Canadian operations.
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