Manager exits at Columbia and John Hancock could signal more change for funds.
Fairholme Fund FAIRX manager Bruce Berkowitz had said that he would add to the fund's position in insurer American International Group AIG when the company issued new shares in May, and he wasn't kidding. Fairholme's May 31 portfolio reveals that Berkowitz more than doubled the fund's AIG position to 18.2% of assets, including warrants. (As a nondiversified fund, Fairholme is free to invest more than 5% of assets in a given company.)
That's relatively conservative, though, compared with the concentrated bets in the May 31 portfolios of smaller siblings Fairholme Allocation FAAFX and Fairholme Focused Income FOCIX. Allocation, which is even less constrained than its larger sibling, has 27% of its assets in bond insurer MBIA MBI and 23.6% in AIG. Focused Income has 23.9% of its portfolio in various MBIA bonds. Both funds have about 15% of assets in cash.
Meanwhile, Fairholme's cash fell to just 4.4% of assets after hitting 25% in February. This erosion of cash has owed more to shareholder outflows, though, than to new stock purchases. With an estimated $780 million in additional July outflows, Fairholme has now lost about $4.3 billion thanks to five months of net redemptions.
Berkowitz recently sold several small positions to meet redemptions and bolster cash. June 30 13G filings show that Fairholme sold its small positions in Spirit AeroSystems SPR and RSC Holdings RRR, which had been a combined 2.2% of assets as of Feb. 28, and trimmed its small stake in Winthrop Realty Trust FUR.
Although the fund has historically avoided technology, Fairholme also opened a relatively small 3.6% position in Cisco Systems CSCO. Berkowitz spoke briefly about Cisco at the Morningstar Investment Conference in June, saying that the company's equipment is critical to the functioning of the United States, particularly in areas such as bank and credit card processing. The shares are trading at just half of Morningstar's current fair value estimate.
Berkowitz is also sticking with his big stakes in national lenders Bank of America BAC and Citigroup C. Both continue to hover near their respective 52-week lows. Berkowitz announced that he will hold a conference call with Bank of America CEO Brian Moynihan on Aug. 10 to discuss how the bank is navigating the economic environment and positioning its balance sheet.
John Hancock High Yield Fund to Button Up?
John Hancock High Yield's JHHBX veteran manager, Arthur Calavritinos, left this week, and it's worth wondering whether the risk profile of the fund could change in his wake.
Calavritinos, who had run the fund since 1995, favored a concentrated, deep-value style, with a greater penchant for lower-rated junk bonds than most peers have. As of June 30, 2011, the fund held 44% of bonds rated below B, 43% of assets in its top 10 holdings, and a sizable exposure to casino bonds. The fund also devotes 22% of its assets to stocks.