Bruce Berkowitz's Fairholme Fund: Portfolio Update (Fourth Quarter 2009) ~ market folly

Monday, February 8, 2010

Bruce Berkowitz's Fairholme Fund: Portfolio Update (Fourth Quarter 2009)

Bruce Berkowitz and the Fairholme Fund (FAIRX) have updated their portfolio disclosures for the fourth quarter of 2009 and we're here to cover the major changes in their 13F filing. Previously, we had covered how Berkowitz liked healthcare plays. This still remains the case as they are littered within his portfolio. Berkowitz along with prominent hedge fund managers will be presenting investment ideas at the Value Investing Congress May 4th & 5th in Pasadena and we highly recommend attending. We've secured a discount to the event for our readers so make sure to use discount code: P10MF5.

Let's get right into Fairholme's portfolio changes from the fourth quarter 2009 (as of 12/31/09):

New Positions
Burlington Northern Santa Fe (BNI)
Citigroup (C)
RSC Holdings (RRR)
Winthrop Realty Trust (FUR)

Increased Positions
Berkshire Hathaway (BRK.A): Increased by 130.3%
WellPoint (WLP): Increased by 82.3%
Berkshire Hathaway (BRK.A): Increased by 62.8%
Humana (HUM): Increased by 23.9%

Reduced Positions
Pfizer (PFE): Reduced by 77.4%
United Rentals (URI): Reduced by 41.5%

Top 15 Holdings by percentage of portfolio

  1. Sears Holdings (SHLD): 12.45%
  2. Berkshire Hathaway (BRK.B): 8.71%
  3. AmeriCredit (ACF): 7.58%
  4. St. Joe (JOE): 7.41%
  5. Humana (HUM): 7.30%
  6. WellPoint (WLP): 6.84%
  7. Burlington Northern (BNI): 6.28%
  8. Hertz Global (HTZ): 6.27%
  9. Citigroup (C): 5.75%
  10. Spirit Aerosystems (SPR): 5.52%
  11. Forest Laboraties (FRX): 5.27%
  12. Berkshire Hathaway (BRK.A): 5.08%
  13. Pfizer (PFE): 4.05%
  14. Leucadia National (LUK): 3.37%
  15. Ensign Energy (ESVIF): 2.14%

So, there are really two major changes in Berkowitz's FAIRX portfolio worth noting. Firstly, he boosted his holding of Berkshire Hathaway by purchasing large quantities of both the A and B shares. Berkowitz is certainly not alone in his bullishness for shares of BRK.A & BRK.B as we saw in hedge fund T2 Partners' analysis of Berkshire as well. Secondly, Berkowitz sold off a large portion of his Pfizer (PFE) stake. PFE had previously been his largest holding and even after the sales, it still represents 4.05% of the portfolio. Overall, 25.3% of Berkowitz's portfolio is invested in healthcare.

We also saw some intriguing news out of the Fairholme Fund that wasn't included in their 13F filing because it was not an equity play. Berkowitz has purchased over $500 million worth of General Growth Properties' (GGWPQ) unsecured debt, over $394 million worth of General Growth convertible bonds, a $110 million tranche loan, and $94 million worth of Rouse bonds. In all, this General Growth position makes up over 5% of Fairholme's portfolio.

So, Fairholme joins the army of other prominent investors that are bullish on the prospects for GGP as it emerges from bankruptcy. Bill Ackman's hedge fund Pershing Square has been long GGP for a while and outlined their analysis in-depth numerous times. Whitney Tilson's T2 Partners also holds a large GGWPQ stake. Possibly the most intriguing aspect of Berkowitz's new play is that he did not purchase equity, at least as far as we can tell. He seems to like the debt as a more attractive play here. For possible rationale as to why he favored the debt, head over to Todd Sullivan's ValuePlays for his analysis as he's provided great in-depth research on the entire situation.

Below is a video of Berkowitz commenting on his recent acquisition:

Overall, some intriguing portfolio moves out of Fairholme. Make sure to check out Berkowitz and various hedge fund managers at the upcoming Value Investing Congress with the discount we secured for our readers using code: P10MF5.

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