Fairholme Fund's Big Bet on Financial Stocks

Bruce Berkowitz is a brilliant fund manager, but his current portfolio makes me nervous.

At 52, Bruce Berkowitz is at the top of his game. Over the past ten years through November 15, Fairholme Fund (symbol FAIRX), which he manages, returned an annualized 11.7%, putting it in the top 1% of large-company value funds, according to Morningstar. Over that period, the fund beat Standard & Poor’s 500-stock index by an average of 11 percentage points per year.

Berkowitz makes big bets. He has invested large chunks of the fund’s money in a handful of stocks, often in just a few industries. He’s ridden those stocks higher for years, sold them, and switched into another small cluster of stocks that subsequently performed just as well or even better. And Berkowitz isn’t afraid to hold cash, which reduces risk and comes in handy when stocks go on sale. Currently, the fund holds about 25% of assets in cash and 10% in bonds.

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Steven Goldberg
Contributing Columnist, Kiplinger.com
Steve has been writing for Kiplinger's for more than 25 years. As an associate editor and then senior associate editor, he covered mutual funds for Kiplinger's Personal Finance magazine from 1994-2006. He also authored a book, But Which Mutual Funds? In 2006 he joined with Jerry Tweddell, one of his best sources on investing, to form Tweddell Goldberg Investment Management to manage money for individual investors. Steve continues to write a regular column for Kiplinger.com and enjoys hearing investing questions from readers. You can contact Steve at 301.650.6567 or sgoldberg@kiplinger.com.