Every quarter, many money managers have to disclose what they’ve bought and sold, via “13F” filings. Their latest moves can shine a bright light on smart stock picks.
Today, let’s look at investing giant Bruce Berkowitz. He’s the founder of Fairholme Capital Management, which oversees three mutual funds of interest: The flagship Fairholme Fund (MUTF:FAIRX) seeks long-term growth of capital, the Fairholme Focused Income (MUTF:FOCIX) seeks current income, and the Fairholme Allocation Fund (MUTF:FAAFX) seeks long-term total return. The funds are all rather focused, each owning no more than several dozen stocks instead of the hundreds that many funds own. The Fairholme fund has many admirers, and Berkowitz was named Morningstar’s fund manager of the decade in 2010. Interestingly, the Fairholme Fund, which closed to new investors earlier this year, has just reopened.
The company’s reportable stock portfolio totaled $7.7 billion in value as of June 30, 2013. Its biggest holdings are American International Group Inc (NYSE:AIG), Bank of America Corp (NYSE:BAC), Sears Holdings Corporation (NASDAQ:SHLD), The St. Joe Company (NYSE:JOE), and Leucadia National Corp. (NYSE:LUK) — and fully 50% of assets are in AIG!
So what does Fairholme’s latest quarterly 13F filing tell us? Here are a few interesting details:
The biggest new holdings are Hartford Financial Services Group Inc (NYSE:HIG) and Lincoln National Corporation (NYSE:LNC). Hartford has been getting out of the annuities, retirement planning, and life insurance businesses as it becomes more of a pure property and casualty insurance company. Its second quarter featured widening net losses, but also an 18% gain in core earnings and management signaling confidence via a 50% dividend hike and an increase in its stock-buyback plans. Its CEO also noted price increases in its property and casualty insurance. Hartford stock has been volatile, but some see it as undervalued now, with a forward P/E ratio of just 9 and a dividend yield around 1.9%. Others don’t like its sizable debt load.
Among holdings in which Fairholme Capital Management increased its stake was Genworth Financial Inc (NYSE:GNW). It looks appealing with its forward P/E ratio near 8, well below its five-year average. Bulls like its selling off its wealth management business — and that it may also exit the long-term care insurance business, too, if it doesn’t win rate increases. (Genworth and John Hancock are the two big players left in the business.) Genworth has been cutting costs via downsizing, and is poised to benefit from a rebound in housing, as it insures mortgages. Some worry, though, that tightening lending standards may result in less need for its insurance. The company recently reported second-quarter net operating income up 93% over year-ago levels, but analysts had expected even better numbers.