Bruce Berkowitz’s Noteworthy Q1 Moves in Financial Stocks

Bruce Berkowitz was recently in the spotlight for his strong criticism of how the U.S government has managed the Fannie Mae and Freddie Mac situation, over which he filed a lawsuit against the government in 2013. However, Berkowitz is used to the attention; back in 2010, Morningstar named him the Domestic-Stock Fund Manager of the Decade for the 2000-to-2009 period, mostly for his work at Fairholme. Talking about Fairholme, the Florida-based mutual fund recently filed its latest 13F, disclosing its long equity stakes as of March 31, which were valued at more than $1.65 billion, down from $2.43 billion at the end of 2015. While the portfolio was heavily focused on real estate (35%) and consumer discretionary (33%) stocks, some of the most interesting moves made by the renowned fund manager in the first quarter were related to its stock picks in the financial sector. Let’s take a look at some of those moves and see which stocks Mr. Berkowitz is bullish on and which he may have lost faith in.

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Berkowitz Disposes of American International Group Inc (NYSE:AIG)

Let’s start with American International Group Inc (NYSE:AIG), a company in which Fairholme trimed its position in every quarter since the third quarter of 2013. During the first quarter of 2016, the firm finally sold off its remaining 271,560 shares of the insurer, though it still holds 10.67 million stock warrants valued at almost $200 million. It should be noted, nonetheless, that over the January-to-March period, Mr. Berkowitz sold 11.32 million warrants, cutting his fund’s stake by 51%.

For the time being, the sales do not seem to have been a wise decision, as shares of AIG have gained 8% in the second quarter. On Tuesday, the stock gained more than 1.3% on the news that the company will enter the crowdfunding scene, not to raise money, but rather to offer insurance for investors putting their money into such projects. The company said it will soon launch “Crowdfunding Fidelity,” an insurance product aimed at protecting investors using equity crowdfunding platforms against fraud.

Fairholme was not the only fund that we track to have closed a position in AIG during the quarter, as the number of funds in our database long the stock fell by almost 7% to 94. Among the other funds that closed out their stakes in AIG, we can count Barry Rosenstein’s JANA Partners, which disposed of its 4.25 million shares of the company.

Fairholme Exits Positions in Berkshire Hathaway Inc. (NYSE:BRK.A)/(NYSE:BRK.B)

Next up are two other closed stakes, in Berkshire Hathaway Inc. (NYSE:BRK.A) and Berkshire Hathaway Inc. (NYSE:BRK.B). On December 31, Fairholme held stakes in both classes of Berkshire’s shares. During the first quarter of 2016, the firm sold all of its 135,242 Class B shares and its 3 Class A shares, which had a combined value of more than $18 million at the end of 2015.

Shares of Berkshire Hathaway have done pretty well in 2016, posting gains of roughly 9%, including gains of about 1% in the second quarter, outperforming the major U.S stock indexes. On May 20, the company’s General Re (reinsurance) unit named Kara Raiguel as its new chief executive officer, to replace the retiring Tad Montross. Shares of Berkshire Hathaway rose by roughly 0.75% on that day.

Another firm that seemed bearish on Mr. Warren Buffett’s holding company was Ray Dalio’s Bridgewater Associates, which disposed of its 77,044 Class B shares over the first quarter.

We’ll take a look at two other big first quarter moves by Mr. Berkowitz on the next page.