The manager of Fairholme Fund Bruce Berkowitz made about $140 million as shares of mortgage insurer MBIA Inc. (NYSE:MBI) surged following a legal settlement with Bank of America Corp (NYSE:BAC). The Fairholme Fund is up 20% for the year, and was up nearly 3% yesterday alone.
The fund manager Berkowitz was named Morningstar, Inc. (NASDAQ:MORN)’s domestic stock manager of the decade in 2010. He made a big bet on insurance companies and financial stocks with about 55 percent of his fund’s assets in such shares as of Nov. 30, according to data compiled by Bloomberg.
Berkowitz’s reputation of betting on financial stocks helped him beat 99 percent of rivals last year.
Yesterday Bank of America Corp (NYSE:BAC) agreed to pay $1.6 billion in cash to the insurance and financial advisory company MBIA Inc. MBIA shares rose as much as 57 percent after the news. Berkowitz’s Fairholme Fund owned 31.4 million shares of MBIA Inc. (NYSE:MBI) as of March 31, according to data compiled by Bloomberg.
Largest Financial Positions Include AIG And MBIA Inc. (MBI)
The founder and manager of the Fairholme Fund, Berkowitz’s largest financial positions include AIG and MBIA Inc. (NYSE:MBI). He began acquiring his largest holding, American International Group Inc (NYSE:AIG), in the first quarter of 2010, when the price dropped to $24 per share on average. That year, AIG’s book value per share was $94.94. Berkowitz more than doubled his stake in 2011. With a highly concentrated portfolio, Berkowitz "ignores the crowd," as the Fairholme Fund motto goes.
The Miami-based Fairholme Fund’s two largest positions are in Bank of America Corp (NYSE:BAC) and the Hoffman Estate, Illinois-based retailer Sears Holdings Corp (NASDAQ:SHLD). While Bank of America’s shares rose 11 percent in 2013, the retailer’s share was up by 26 percent this year.
Last week, American International Group Inc (NYSE:AIG) shares rose after the company reported better-than-expected earnings. Berkowitz’s Fairholme Capital Management LLC owns more than 85 million AIG shares.
Bruce Berkowitz’s Fairholme Fund had a terrible 2011, finishing the year down 32 percent. However, the fund came back in 2012 with a 35.81 percent gain. This bounce back parallels the Himalayan-like heights of hedge fund performance charts in 2012. He believes his investment thesis for the biggest losing stocks will not play out in full for about five years. Berkowitz accumulated financial stocks in 2010, reasoning that as the U.S. economy improved, banks and insurers would rebound along with them.
According to Fairholme Fund’s SEC filing, Bruce Berkowitz and his mutual fund has dumped its entire stake in CIT Group Inc. (NYSE: CIT).