Bruce Berkowitz and Fairholme’s New Stock Picks and Portfolio

Bruce Berkowitz is an accomplished mutual fund manager. His $19 Billion Fairholme Fund managed to return 12.9% annually since 2000. Some of his returns are attributed to his value investing bias, and some to his long bias, but almost half of his returns were pure alpha. Even during the past 3 years, Berkowitz managed to generate a 3% annual alpha. His most notable recent investments were General Growth Properties, frpm which his investors made $1.4 Billion and Pershing Square walked off with a hefty return as well, and AIG, which beat the SPY by more than 50 percentage points since Berkowitz started to invest. Last year Steve Eisman publicly recommended shorting AIG, but it seems like Berkowitz was right about AIG.

FAIRHOLME (FAIRX) Bruce Berkowitz

Insider Monkey, your source for free insider trading data, is curious about Berkowitz’s new stock picks and their performance. We like to imitate fund managers who demonstrated some skill in stock picking. During the fourth quarter Berkowitz bought four new stocks. He also had to start reporting his GGP investments in his 13F filings.

Company Ticker Return Value (Million)
AT&T INC COM T -1.3% 276
VERIZON COMMUNICATIONS INC COM VZ 3.7% 265
BANCO SANTANDER SA- ADR STD 20.7% 50
ROYAL DUTCH SHELL PLC-ADR RDS-A 7.6% 12

His new stock picks returned 2.9% so far in 2011, vs. SPY’s 7.0% return. His high dividend telecom investments didn’t yield much in terms of capital gains. During the fourth quarter Berkowitz received a lot of new money for Fairholme. The value of his portfolio increased by 40%. As a result, he put more money in his old stock picks. Here is how these stocks performed:

Company Ticker Return Value (Million)
AMERICAN INTERNATIONAL GROUP INC AIG -14.0% 2552
BANK OF AMERICA CORP BAC 10.6% 1229
BERKSHIRE HATHAWAY BRK-B 6.2% 548
C I T GROUP INC NEW CIT -8.1% 942
GENERAL ELECTRIC CO GE 17.2% 292
ST JOE CO JOE 28.6% 585
M B I A INC MBI 0.5% 461
MORGAN STANLEY DEAN WITTER & CO MS 14.1% 1050
REGIONS FINANCIAL CORP NEW RF 11.3% 871
SEARS HOLDINGS CORP SHLD 26.1% 1100

These 10 stocks returned 5% since the end of December, underperforming the SPY by 2 percentage points. His $2.5 Billion AIG investment caused this underperformance. Excluding AIG, these stocks had a weighted average return of 11.9%, beating the SPY by nearly 5 percentage points. Berkowitz added nearly 22 million shares of Bank of America during the fourth quarter. Lee Ainslie’s Maverick, David Tepper’s Appaloosa, John Paulson’s Paulson & Co are other hedge funds with Bank of America (BAC) investments. Warren Buffett sold all his BAC holdings during the fourth quarter (see Warren Buffett‘s new stock picks). David Einhorn’s Greenlight Capital, Dan Loeb’s Third Point, and Paulson & Co also have CIT Group in their portfolio. Berkowitz also has significant investments in Berkshire Hathaway and Eddie Lampert’s Sears Holdings.

During the fourth quarter Berkowitz started to reduce some of his holdings. Here is how these 8 stocks performed since the beginning of 2011:

Company Ticker Return Value (Million)
CITIGROUP INC COM C 3.8% 1122
GOLDMAN SACHS GROUP, INC. GS -0.1% 990
LEUCADIA NATL CORP COM LUK 16.7% 555
SPIRIT AEROSYSTEMS HLDGS INC C SPR 23.9% 362
RSC HOLDINGS, INC. RRR 42.1% 143
WELLCARE HEALTH PLANS INC COM WCG 27.2% 108
WINTHROP REALTY TRUST FUR -1.3% 32
HUMANA INC COM HUM 12.2% 0.5

Interestingly, these 8 stocks Berkowitz was selling performed much better than the stocks he was buying. The weighted average return of these stocks was 9.4%, beating the SPY by 2.4 percentage points. Bruce Berkowitz is really bullish about his financial holdings, including Goldman Sachs and Citigroup. This is what Fortune wrote about Berkowitz’s Citigroup investment:

Fairholme’s $450 million investment in Citigroup in the fourth quarter of 2009 was his first sizable bet. Citi lost almost $30 billion in 2008 alone, and its shares fell more than 90% during the credit crisis. But by the fall of 2009, Berkowitz could see that good, conservative loans were replacing bad ones in Citi’s lending businesses — and even its so-called toxic assets were yielding more than 5%. “You have to normalize the environment — that’s the arbitrage,” he says. “Are they going to make it through the tough times? And what are they going to look like in more normal times?” So far in 2010, Citi shares are up 34%, and Berkowitz believes they could easily double from here.”

Lee Ainslie’s Maverick Capital, George Soros, Bill Ackman’s Pershing Square, David Tepper’s Appaloosa, Daniel Loeb’s Third Point, Andreas Halvorsen’s Viking Global, Richard Perry’s Perry Capital, Joseph DiMenna’s Zweig-DiMenna, Leon Cooperman’s Omega Advisors, and John Paulson’s Paulson & Co are among the other hedge funds that are bullish about Citigroup.

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