Bruce Berkowitz, founder and manager of the $8 billion Fairholme Fund, had a rough 2011. According to Bloomberg, it was the Fund's worst on record – a devastating charge given that Morningstar had named Berkowitz "domestic stock manager of the decade in 2010 for returning an average of 13 percent over that period, is trailing 99 percent of peers this year after betting that financial stocks would rebound with the economy."
But, it was wrong-way bets on financial firms, and massive stake in the poorly performing Sears Holding Corp (SHLD), that is causing Berkowitz's low returns. SHLD lost roughly 58% in 2010, making it the sixth-worst performer in the S&P in 2011. “I just don’t see how we get hurt with Sears,” Berkowitz said in a May conference call with his fund's investors. “Maybe we make an awful lot of money, time will tell. So far I’ve been wrong.” Berkowitz had 16,270,692 shares of SHLD at the end of the third quarter.
Berkowitz was also hit hard by financials. "Fairholme Fund had 76 percent of its stock holdings in financial shares as of Aug. 31, including New York-based American International Group Inc. (AIG) and Charlotte, North Carolina- based Bank of America Corp. (BAC), Morningstar data show," reports Bloomberg. "Financial shares... declined about 18 percent..., making them the worst-performing group in the Standard & Poor’s 500 Index."
The poor performance is leading to high redemptions for the Fairholme Fund. According to Bloomberg, "Investors pulled money from Fairholme Fund for nine consecutive months through November with net redemptions totaling more than $7 billion over that stretch."