Berkowitz's Fairholme Capital Makes a Few Big Moves in Q1

Includes: AIG, BAM, CSCO, GE, GGP, SHLD, T, VZ
by: Zvi Bar
Fairholme Capital Management is well regarded as one of the most popular and high profile asset managers. It’s founder, Bruce Berkowitz, is considered by many to be one of the better large investors on the Street, and also a contrarian. Fairholme is well known for holding fewer, larger positions than most companies of its size, not unlike Warren Buffett. Fairholme’s flagship fund (FAIRX) is a substantial fund, at $18 billion, last reporting holdings of approximately 25% cash and 70% in about a dozen equities.
Four times a year, the company must file a 13F with the SEC, delineating the main equity transactions made in the prior quarter (just equities, not debt or private placements, though Fairholme has few of those). Last week, Fairholme filed its 13F, so we now know what positions the fund took in the first quarter of 2011, and from which it departed. This article will focus on the transactions with a market value above $200 million.
Major 13F Transactions at Fairholme Capital Management
Fairholme made two new large acquisitions in the first quarter of 2011. The largest was in Brookfield Asset Management Inc. (NYSE:BAM), a large property, renewable power and infrastructure manager. Fairholme purchased 27.5 million shares of BAM, with a value of over $892 at the end of the quarter. Contrast BAM with the largest position Fairholme exited, over 113 million shares of General Growth Properties, Inc. (NYSE:GGP), valued at over 1.75 billion at the end of the first quarter. This amounted to over 10% of GGP, a large retail and mall REIT that emerged from bankruptcy restructuring last year.
Fairholme also purchased over 35.8 million shares of Cisco Systems, Inc. (NASDAQ:CSCO), with a value of over $614 million. Cisco is a contrarian investment these days, having underperformed the market generally, declining particularly and not participating in any of the recent Internet momentum. While declining, CSCO has recently initiated a dividend and has a large cache of cash. I cannot speak to the competition and technological advances coming.
Fairholme sold all of its General Electric Co. (NYSE:GE), selling nearly $16 million shares valued at over $290 million at the end of the quarter. GE has become a central player in the implementation of many government green programs and has shown the ability to pay low tax rates, but Fairholme was happy to part ways with the well-known conglomerate.
Fairholme did increase its position in Sears Holdings Corporation (NASDAQ:SHLD), the retailer that runs Sears and Kmart. Fairholme acquired nearly $250 million more and now has over 16 million shares worth over $1.3 billion at he end of the quarter. Fairholme has acquired about a 15% stake in SHLD, indicating a strong level of comfort with the present valuation.
Fairholme also had notable decreases. First, the filing indicates a sale of some of its American International Group, Inc. (NYSE:AIG), the well-known insurer. Fairholme still lists AIG as its largest holding, valued at over $1.5 billion at the end of the first quarter. Fairholme also has some AIG warrants. Fairholme also sold about $250 million worth of both of AT&T (NYSE:T) and Verizon Communications (NYSE:VZ), the two well-known American telecoms. Fairholme has sold nearly all of both.
The Berkowitz Fairholme model appears to be sticking to its guns. Fairholme initiated two reasonably large positions in BAM and CSCO, and increased its already significant SHLD position. It began to exit AIG, and that may continue now that more is known about the government’s activity in the company. It also exited GGP, which was formerly its largest equity position, and this will likely be concerning to some GGP holders. Fairholme appears to continue to hold a large percentage in cash, keeping a fair supply of power dry, which has only grown over the last quarter.
Disclosure: I am long GE.
Additional disclosure: Each investment should be considered relative to the total portfolio and its objectives.