Fairholme Fund

Class No Load (FAIRX)
Scorecard
3 / 5 Stars
Lipper
3 1 1 4 3
Zacks Investment Research
2 (Buy)
Standard & Poor's
3 / 5 Stars
TheStreet.com
D (Sell)

#147 in Large Value

U.S. News evaluated 329 Large Value Funds. Our list highlights the top-rated funds for long-term investors based on the ratings of leading fund industry researchers.

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Performance

The fund has returned 29.34 percent over the past year, 9.62 percent over the past three years, 20.72 percent over the past five years, and 10.37 percent over the past decade.

Trailing Returns Updated 03.31.2014
Year to date 3.4%
1 Year 29.3%
3 Years (Annualized) 9.6%
5 Years (Annualized) 20.7%
10 Years (Annualized) 10.4%

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Summary

The Fairholme Fund's 14 percent annualized return (as of the end of 2010) since its 1999 inception hasn't gone unnoticed. Nonetheless, this year the fund is experiencing something quite unusual: truly terrible performance.

As of April 22, 2014, the fund has assets totaling $8.50 billion. Its portfolio consists largely of shares of financial services companies.

Once again, lead manager Bruce Berkowitz is making a big bet. As of the end of February, a whopping 74 percent of the fund's stock holdings were in financial services companies. The fund has substantial positions in AIG, Bank of America, Citigroup, and Morgan Stanley, among other companies in the sector. Although Berkowitz has earned a reputation as somewhat of an investing wizard--it's not at all unusual for him to beat the broader market by 10 percentage points in a given year--the fund has fallen flat in 2011. The overwhelming majority of the fund's holdings are in the red for the year. As of June 10, the fund had lost nearly 12 percent year-to-date. That landed Berkowitz in unfamiliar territory: the bottom percentile of Morningstar's large value category. Still, given Berkowitz's record, this is likely a short-term phenomenon. Says Morningstar: "Given his contrarian approach and concentrated bets, periods of poor returns are inevitable. After many years of exceptional results, the real surprise is that it hasn't happened more often. The fund is designed to reward those with a long horizon." The fund has returned 29.34 percent over the past year and 9.62 percent over the past three years.

Management usually holds about 20 stocks. This is a stock picker's fund, and Berkowitz will hold a fair amount of cash if he doesn't believe there are many opportunities in the market. Management also has a small stake in bonds. Berkowitz will at times make big bets for and against certain sectors, depending on which areas look most attractive. Despite the fund's poor showing in 2011, its long-term numbers remain stellar. The fund has returned 20.72 percent over the past five years and 10.37 percent over the past decade.

Investment Strategy

Berkowitz usually focuses on established companies with steady cash flows, "but they've also had a penchant for buying turnaround stories when they see a big opportunity," according to Morningstar. "We invest where we believe that we have an informational edge and can count the potential cash returns," Berkowitz says.

Role in Portfolio

Morningstar assigns the fund a "core" role in portfolio saying, "This fund is concentrated by sector and in individual holdings, but its record of capital preservation and its large cash stakes will help give it the stability to be a core holding."

Management

Bruce Berkowitz is the fund's lead manager. He was named a Morningstar Fund Manager of the Year in 2009, and he is one of three Morningstar Fund Managers of the Decade. He says he "has the lion’s share of his family’s long-term investments in the Fairholme Fund."

Fees

Fairholme Fund has an expense ratio of 1.01 percent.

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Risk

Since the fund's holdings are fairly concentrated, it can be vulnerable to major sector or individual sell-offs.

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Fund Opinions

The fund's Value Line Overall Rank, a measure of risk-adjusted performance and relative growth in fund returns, is 3 on a scale of 1 to 5, with 1 being the best and 5 the worst.

Value Line 2014-04-10

The fund's Value Line Growth Persistence rank, which awards funds that consistently outperform their broad universes, is 2 for one year, 3 for five years, and 2 for 10 years. Scores are on a 1 to 5 scale, with 1 being the best and 5 the worst.

Value Line 2014-04-10

The fund's Value Line Risk Rank, a measure of volatility, is 5 on a scale of 1 to 5, with 1 being the least volatile and 5 the most.

Value Line 2014-04-10

The fund appears on the 2011 Money 70 list of recommended mutual and exchange-traded funds.

Money 70

We think [portfolio manager Bruce] Berkowitz is a great investor. He is passionate about investing and knows his companies extremely well. He is an independent thinker whose conviction in his holdings is reflected in his portfolio. Despite the success he has already achieved since starting Fairholme Capital, he does not come across as overconfident.

Litman Gregory 2010-12-13

The Fairholme Fund began in 1999 and is one of two funds in the family. Berkowitz also began managing Fairholme's newest bond fund, Fairholme Focused Income fund, in January 2010.

2010-01-26

The Fairholme Fund began in 1999 and is one of two funds in the family. Berkowitz also began managing Fairholme's newest bond fund, Fairholme Focused Income fund, in January 2010.

2010-01-26