Tracking Bruce Berkowitz's Fairholme Portfolio - Q4 2018 Update

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Includes: BRK.B, FAAFX, FAIRX, FMCC, FMCKJ, FNMA, FNMAS, FOCIX, IPMLF, JEF, JOE, SHLDQ, SPB, T, VST, VSTO
by: John Vincent
Summary

Bruce Berkowitz’s 13F stock portfolio value decreased ~39% this quarter, from $599M to $367M.

Fairholme dropped Spectrum Brands and Vistra Energy, while reducing Vista Outdoor and Jefferies Financial Group.

The 13F portfolio has 95% invested in St. Joe Company.

This article is part of a series that provides an ongoing analysis of the changes made to Fairholme’s 13F stock portfolio on a quarterly basis. It is based on Fairholme’s regulatory 13F Form filed on 02/14/2019. Please visit our Tracking Bruce Berkowitz's Fairholme Fund Holdings article for an idea on how his holdings have progressed over the years and our previous update for the fund’s moves during Q3 2018.

Berkowitz’s 13F stock portfolio value decreased ~39%, from $599M to $367M, this quarter. The 13F portfolio currently has 95.34% invested in St. Joe Company (JOE).

Berkowitz’s flagship Fairholme Fund (FAIRX) has generated significant alpha since its December 1999 inception: through 2018, the fund returned at an annualized rate of 7.99%, compared to 4.89% for S&P 500 index. FAIRX has, however, underperformed over the most recent 10-year period. Of the $1.1B AUM, Cash and Equivalents are at ~44%, St. Joe stock at ~30%, and Fannie/Freddie Pfds at 12.8%. The other funds under the Fairholme umbrella are the Fairholme Focused Income Fund No Load (FOCIX) and the Fairholme Allocation Fund (FAAFX). Large equity holdings that are not in the 13F report include Fannie Mae (OTCQB:FNMA) pfds (OTCQB:FNMAS), Freddie Mac (OTCQB:FMCC) pfds (OTCQB:FMCKJ), and Imperial Metals (OTCPK:IPMLF).

Note: Fairholme’s 2018 Letter had the following regarding Fannie/Freddie: they believe that despite the 35% jump in January, the preferred shares continue to trade at large discounts to redemption values and realistic future outcomes.

Stake Disposals

Spectrum Brands (SPB): Combined, SPB & HRG Group accounted for 5.4% of the portfolio as of Q2 2018. In August, HRG Group’s controlling interest structure was unwound by merging with Spectrum Brands. SPB traded at prices between $68 and $98 over Q2 & Q3 2018 and currently goes for $55.52. The position was disposed this quarter at prices between $41.50 and $75.

Berkshire Hathaway (BRK.B): BRK.B was a minutely small 0.34% of the portfolio stake established last quarter at prices between $186 and $222, and disposed this quarter at prices between $188 and $224. The stock currently trades at ~$204.

Vistra Energy (VST): The 4.21% VST position was purchased in Q1 2018 at prices between $17.50 and $21, and disposed this quarter at prices between $21 and $25.50. It is now at $26.02.

Note: Vistra Energy emerged from bankruptcy reorg in December 2016 and started trading at ~$16 per share.

Sears Holdings Corp (OTCPK:SHLDQ) and Sears WTS 28.41 Strike: The original Sears stake was established in 2007, although the position size has fluctuated over the years. Fairholme’s original cost basis was ~$61. There was a ~13% trimming in Q4 2017, and that was followed with a ~27% selling next quarter at prices between $2.07 and $3.80. Last quarter also saw a ~20% reduction at prices between $0.80 and $2.40. In October, Sears filed for bankruptcy protection and CEO Eddie Lampert stepped down.

AT&T Inc. (T): T was a minutely small position established in Q1 2018. Next quarter saw the stake built up to a 5.30% position at prices between $31.50 and $36. Last quarter saw an about-turn: a ~70% selling at prices between $30.25 and $34, and the elimination this quarter was at prices between $27.25 and $34. The stock currently trades at $30.28.

New Stakes

None.

Stake Increases

None.

Stake Decreases

St. Joe Company: JOE is the largest stake by far at 95.34% of the 13F portfolio. The bulk of the position was purchased in the 2008-2009 time frame, and there have only been minor adjustments since. The last three quarters of 2017 had seen a combined ~14% increase at prices between $16.35 and $19.55. Currently, it trades at $15.56. Berkowitz’s ownership stake is at ~44% of the business. Last year saw minor trimming.

Vista Outdoor (VSTO): VSTO is a 4.57% portfolio stake established in Q1 2018 at prices between $14 and $20, and increased by ~80% next quarter at prices between $13 and $18. The stock currently trades well below those ranges at $8.29. Last quarter saw a ~30% selling at prices between $15.50 and $19, and that was followed with a ~60% selling this quarter at prices between $10 and $17.50.

Note: Vista Outdoor is a 2015 spin-off from Alliant Techsystems, which in turn was spun off from Honeywell (HON). It is a dominant producer of ammunition that is purchased by military, police, and governments around the world.

Jefferies Financial Group (JEF) (previously Leucadia National): JEF is a very long-term holding that was built over several years. The position had seen large reductions since Q2 2013. In recent activity, Q4 2015 saw a ~55% reduction at prices between $16 and $21, and the remaining stake was almost eliminated the following quarter at prices between $14.50 and $17.50. It currently trades at $19.72.

Kept Steady

None.

The spreadsheet below highlights changes to Fairholme’s 13F stock holdings in Q4 2018:

Bruce Berkowitz - Fairholme Fund - Q4 2018 13F Report Q/Q Comparison

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: We are long Fannie/Freddie pfds.