Bruce Berkowitz (Trades, Portfolio) of Fairholme Capital has increased his stakes in Fannie Mae (FNMA, Financial) and Freddie Mac (FMCC, Financial). With Fannie and Freddie stock prices falling, they now make up a smaller position of value in Fairholmes portfolio compared to mid-2014. Bruce Berkowitz (Trades, Portfolio) is heavly invested in the GSE's and has a law suit against the government over the all of Fannie and Freddie earnings being taken by the government.
In Fairholmes recent annual report the firm say its owns 15.5 million common shares of Fannie Mae and 14.6 million common shares of Freddie Mac valued at the end of November at $77 million. The firm went from owning 13.7 million shares of Fannie Mae and owning 11.5 million shares of Freddie Mac valued at the end of May at $111 million. The firm increased its stake in the Fannie and Freddie preferred shares. As Fairholmes increased its stake in the GSE's preferred shares the value of its stakes have fallen from $1.2 billion to $516 million as well. Fannie and Freddie positions set now at 8.7% of Fairholmes portfolio down form 15% in May of 2014. Bruce Berkwoitz is making a very contrarin bet on the GSEs and when shares fall he adds to his positions in common and preferred shares.
Fairholme's conference call
Fairholme's fund tumbled towards the end of 2014, with it reporting a 2.7% loss for last year. The fund has dropped 8.7% since the end of December. During a conference call, investor Bruce Berkowitz (Trades, Portfolio) talked about Fannie and Freddie and other issue with investors. Berkowitz expressed optimism about Fairholme which was filed in 2013 and revived by Judge Margaret Sweeney last week.
He said to investors, "We've had our ups and downs, but we are making considerable progress in the Federal Court of Claims," Bruce Berkowitz (Trades, Portfolio) said. "The judge will decline the Justice Department's motion to stay the case despite the government's purposeful delays. Discovery is ongoing. Our lawyers have reviewed 400,000 pages of documents. Depositions will soon begin."
The fund has sufferd its fourth straight year of outflows, and the firm has underpeformed its competitors over the last five years. The Fairholme Fund has shrunk from $18.8 billion in the end of 2010 to about $6.6 billion in the end of December 2014.
During the conference call he said, "Buy hated companies requires patience and courage of conviction." Berkowitz went on to say, "There is no free lunch."
He said that he was confident in the long-term prospects of companies including Bank of America (BAC, Financial), AIG (AIG, Financial), Sears Holding Corp(SHLD, Financial) and Fannie and Freddie. Berkowitz said that Bank of America and AIG, the largest positions in his portfolio, can gain in value as both firms trade below book value. He went on to say that the firm will profit when interest rate rise.
Bruce Berkowitz (Trades, Portfolio) told his investors that they needed to welcome short-term fluctuation in stock price, because those changes give Fairholme a change to buy when value and market price diverge.
He said, " We need volatility to prosper, we need false perception," Berkowitz went on to says, " Risk does not equal volatility."
Fairholme's 2014 annual report: http://static1.squarespace.com/static/53962eb7e4b053c664d74f3d/t/54cc0c88e4b01e8c22bc8148/1422658696249/Fairholme+Fund+Annual+Report+2014.pdf
