Bruce Berkowitz has been adding to his positions in Fannie Mae and Freddie Mac, but their falling stock price means they are a smaller portion of the Fairholme Fund’s portfolio

Bruce Berkowitz’s Fairholme Funds has continued buying common stock in Fannie Mae and Freddie Mac, even though the drop in stock prices means that the two positions are smaller in value than they were mid-2014. Berkowitz has been heavily invested in the GSEs for years now, and his suit in the US Court of Federal Claims is vital to the long thesis, so it’s a good sign for his fellow bulls that he continues to buy in.

Bruce Berkowitz Adds To Fannie Mae, Freddie Mac Positions

Berkowitz adds to Fannie Mae, Freddie Mac, though market value of each positions down

The recently released annual report for the Fairholme Fund says that it owned 15.5 million shares of Fannie Mae and 14.6 million shares of Freddie Mac valued at $72.7 million as of November 30 last year, up from 13.7 million shares of Fannie Mae and 11.5 million shares of Freddie Mac as of $111 million on May 31. Similarly, Fairholme has increased the number of preferred shares that it holds of both GSEs, though the market value of the preferred stock positions has fallen from $1.2 billion to $516 million in the same time frame. Overall, Fannie Mae and Freddie Mac made up 8.7% of the Fairholme Fund portfolio at the end of November, down from 15.3%. That’s a big loss for a single year, but if Berkowitz’s investment works out, bringing down the cost per share means the eventual profit will be even larger.

GSEs not typical value investments, but Berkowitz is happy to be contrarian

Berkowitz has explained before that he doesn’t have any qualms about making extremely concentrated bets – the GSEs, AIG, and Bank of America alone make up more than half of the Fairholme Fund portfolio – and the habit of starting his annual reports with Benjamin Graham quotes tells you that he’s the kind of investor who’s willing to stomach the downturns as long as he believes in his investment. Fannie Mae and Freddie Mac certainly aren’t classic value investments (there’s nothing in The Intelligent Investor that tells you how to discount for political risk), but Berkowitz is happy to be the contrarian.

Berkowitz is holding a conference call to discuss the annual report tomorrow, so we’ll report back on how he sees the investments in Fannie Mae and Freddie Mac developing in the year ahead. Stay tuned!