Bruce Berkowitz Adds To Fannie Mae, Freddie Mac Positions

Bruce Berkowitz Adds To Fannie Mae, Freddie Mac Positions
By Hedge Funds [CC BY 3.0], via Wikimedia Commons

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.

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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.

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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!

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Michael has a Bachelor's Degree in mathematics and physics from Boston University and Master's Degree in physics from University of California, San Diego. He has worked as an editor and writer for several magazines. Prior to his career in journalism, Michael Worked in the Peace Corps teaching math and science in South Africa.
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  1. Speaking for Graham quotes, perhaps the two most important ones are:

    1. “In the old legend the wise men finally boiled down the history of mortal affairs into the single phrase, “This too will pass.” Confronted with a like challenge to distill the secret of sound investment into three words, we venture the motto – Margin of Safety.”

    2. “An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.”

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