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American International Group Inc (AIG), Bank of America Corp (BAC): Bruce Berkowitz of Fairholme Talks About His Top Picks and Strategy

Bruce Berkowitz, the manager of Fairholme fund, is a notorious mutual fund manager with around $19 billion in Assets Under Management. While the fund’s around 80% of its $9.9 billion equity portfolio is concentrated in the financial sector, it managed to post a cummulative return of over 28% over the past year. On Friday, Mr. Berkowitz, who in 2010 was named “Fund Manager of the Decade” by Morningstar, will be the guest of the CONSUELO MACK WEALTHTRACK. In the meantime, Wealthtrack has provided a short preview of the interview, where Mr. Berkowitz explained why he invests in American International Group Inc (NYSE:AIG) and Bank of America Corp (NYSE:BAC) and why Fairholme has a more concentrated equity portfolio in comparison with other funds.

FAIRHOLME (FAIRX) Bruce Berkowitz

Mr. Berkowitz explained that Fairholme has a less-diversified portfolio because his approache is focused on his circle of competence and that he invests in companies that he feels most comfortable with. As an example, he said that he prefers to invest in American International Group Inc (NYSE:AIG), rather than pick six different insurance stocks, or he would more likely pick Bank of America Corp (NYSE:BAC) over six different banks. As of the end of the second quarter, Fairholme’s two-largest positions in terms of value are represented by American International Group Inc (NYSE:AIG) and Bank of America Corp (NYSE:BAC), the fund disclosing stakes worth $3.81 billion and $1.51 billion respectively.

“[…] I believe they [American International Group Inc (NYSE:AIG) and Bank of America Corp (NYSE:BAC)] are the cheapest relative to their intrinsic value and I belive that after studying them for decades I have an understanding of the institutions,” Mr. Berkowitz said.

Moreover, the manager of Fairholme said that his fund is sticking to the same strategy they adopted at the beginning, which is to invest in the leading companies and increase its exposure to these companies rather than to diversify by investing in less-profitable stocks. Fairholme has stuck to this strategy since its inception and was commited to keeping its positions during some stressful times, as Mr. Berkowitz said. In the end, this strategy proves to be working, however, it is still needed to wait for several years to see if this strategy is truly profitable.

However, it is also important to mention that Fairholme’s Assets Under Management have dropped by around 70% from $20 billion to $7 billion in one of the recent years. This was mainly caused by a huge decline of the fund, which lost over 30% and led to a withdrawal of funds by many investors.

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