Fairholme Fund Letter Talks AIG, Bank of America, Sears, Fannie, Freddie
The Fairholme Fund gained 35.54% versus 32.39% for the S&P 500 Index in 2013. The Fairholme Fund is run by Bruce Berkowitz.
The fund’s two largest positions are AIG commons and warrants, and Bank of America (BAC) common stock and he had this to say about them:
“have significant value beyond their fortress-like balance sheets, and are capable of distributing healthy earnings to owners through dividends and/or buybacks of common stock. Yet, both trade at discounts to book value.
The Fund is a major holder of Sears Holdings (SHLD) and recently appointed a board member.
Headlines shout of Sears’ disastrous 2013 loss of $12 per share. A longer history shows that since the merger of Sears with Kmart, about 9 years ago, Sears has distributed over $66 of cash per share via buybacks and spin-offs and has paid down $27 per share of a pension liability that is no different, in our view, from debt. Fairholme research estimates that the fair value of Sears’ net assets exceeds $150 per share. If our research is accurate, we expect Sears’ market price of $38 to increase to this value over time.
In general on the Fund’s holdings:
The Fund’s portfolio prices remain a third below our growing estimates of intrinsic value… If history is any guide, expect these two measures to converge one day. For now, we believe, the difference between them to be a large margin of safety.
We recommend checking out the full letter which discusses two of his best performers Fannie Mae (FNMA) and Freddie Mac (FMCC) and his macroeconomic thoughts.