Who is Bruce Berkowitz? Each quarter, hedge funds, such as Bruce Berkowitz’s Fairholme (FAIRX), file 13Fs with the SEC. The 13F forms disclose many of the positions held in the fund’s equity portfolio during the quarter. Fairholme is a very large managed fund, with over $19 billion assets under management. We will now take a quick look at five positions held by Fairholme as at March 31, 2013, that are major players in the insurance sector.
His biggest insurance bets
The fund’s largest insurance holding, as well as its largest holding overall, was in American International Group Inc (NYSE:AIG), with 85,900,077 shares worth about 3.3 billion held as of March 31, 2013, a very slight increase from the amount held at the end of 2012. American International Group Inc (NYSE:AIG) comprises over 42% of the fund’s total equity portfolio. Price action for American International Group Inc (NYSE:AIG) has been very bullish, with the stock currently trading near its 52-week high at $44.71. The impetus for the recent price action seems to be a recent earnings beat. First-quarter net income was $2 billion, or $1.34 a share; analysts had expected earnings of just 87 cents a share.
The second largest insurance-related stake held by the fund was in bond insurer MBIA Inc. (NYSE:MBI). During the quarter, Berkowitz decreased the fund’s stake by approximately 26%, to 31,425,820 shares worth about $322 million, as of March 31, 2013. MBIA Inc. (NYSE:MBI) recently won a successful settlement against Bank of America Corp (NYSE:BAC) causing a 40% rise in its share price; Berkowitz’s scale-down during the quarter may have been an attempt to hedge against the uncertainty created by the case, although if so, this proved to be unnecessary.
Next is Warren Buffett’s company – Berkshire Hathaway Inc. (NYSE:BRK.B), which, although a conglomerate with diverse interests, has major operations in GEICO, life insurance and annuity sales. The fund increased its already substantial holding in Class B Shares of Berkshire Hathaway Inc. (NYSE:BRK.B) by 746,400 shares to 1,530,975 shares worth over $159 million, as of March 31, 2013. Fairholme also holds six Class A Berkshire Hathaway Inc. (NYSE:BRK.A) shares worth about $937,000. Buffett’s company needs no introduction and Berkowitz is one of Buffett’s best known disciples, so the move could be considered a vote of confidence in the historically strong performance of Berkshire Hathaway Inc. (NYSE:BRK.B).
However, would-be investors should note that Standard & Poors has recently downgraded the company from a credit rating of AA+ to AA, due to concerns about Buffett’s age, failure to make public the name of his successor and the company’s over-reliance on the insurance business to pay dividends.