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FAIRX to FAAFX?


bargainman
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Given the recent news of Fairholme's soft closure, I'm considering if I should shift most of my FAIRX into FAAFX.  Wondering what people here think..

 

FAAFX:  (# is %)

 

Holdings:

http://portfolios.morningstar.com/fund/holdings?t=FAAFX&region=USA&culture=en-us

Mostly: MBI(30), AIG(15), SHLD(9), BAC & WFC wts (6.6,6.5).

 

Expense ratio: 0.75%

assets: 267 million

 

http://quote.morningstar.com/fund/f.aspx?t=faafx

minimum initial purchase of 25k!!! 

 

=========

 

FAIRX:  (# is %)

 

Holdings:

http://portfolios.morningstar.com/fund/holdings?t=FAIRX&region=USA&culture=en-us

Mostly: AIG(37), SHLD(10), BAC(8.8), GGP(7.6), JOE(5.8), CIT (5), AIG WTS (3.78)

 

Expense ratio: 1.01%

assets: 7.6 billion

 

http://quote.morningstar.com/fund/f.aspx?t=FAIRX

minimum initial purchase of 10k

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I'm kind of surprised that FAAFX is cheaper than FAIRX given the size difference!  I have almost enough of FAIRX where if I redeemed most of it, or all of it I could get into FAAFX without too much more of an investment.  but the question is.. should I?  Clock is ticking to make a decision....

 

thoughts?

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Iirc, the assets under management fee is only 0.75% in a year where there's a loss.  I believe it's 1%-ish otherwise.

 

In regards to whether to switch or not, it depends on what you think Berkowitz is going to do in the future.  I think that if he keeps FAAFX around it will probably outperform FAIRX in the long run.  Maybe even grossly so.  My fear, however, is that, with whatever he's holding up his sleeve right now, he may not keep FAAFX around...

 

This all being said though, I've only been doing investing for a few years now.  So I really have no idea what fund managers tend to do in situations like the one Berkowitz is in now.  So you may want to consider giving my thoughts a small discount :)

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My preference is for FAAFX for the following reasons:

 

1) Berkowitz has stated FAAFX is designed to reach smaller opportunities than FAIRX, but he obviously doesn't forfeit being able to go after the big ones (i.e. AIG, BAC, etc....)

2) Berkowitz has stated that FAIRX is large enough that opportunities appear to lend money or facilitate corporate transformations (i.e. GGP) that a smaller fund couldn't do.  HOWEVER, when he has done this, he has included the smaller fund(s) in these transactions as well.  Therefore, no disadvantage to the smaller.

3) People investing in FAAFX are more familiar with Fairholme, in my opinion.  Therefore, the investor base is likely to behave better on average during periods of underperformance, etc...

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Looking at this particular point in time, I like FAIRX allocation with about 50% in AIG/BAC. I would expect FAAFX to have better returns over the long term, for reasons already mentioned by others. I split the investment equally between them.

 

Vinod

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You can also see that FAAFX has an asset allocation that is closer to what I think Berkowitz would allocate all his money if it were completely private (meaning a far higher position in various bank warrants and probably a little more BAC relative to AIG). Berkowitz said in recent interviews that he likes AIG's liquidty, and that is probably the reason why the AIG to BAC ratio in FAIRX is a lot higher than it is in FAAFX (which has a far more levered position in the warrants). BAC is fairly liquid, but far more volatile than AIG, particularly to the downside whenever there are negative headlines. FAAFX probably has more of the older long term investors and less of the "hot money", so he can afford to be more aggressive with the asset allocation.

 

I can actually imagine that Berkowitz would, if he were only managing his own money, allocate as much as half of his portfolio to a basket of TARP warrants, because he seems to have that much conviction in financials.

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Thanks for all the good replies.  I pretty much agree with what's been said.  Agree that if they stay around, FAAFX is going to be better long term, but that the current mix is probably better for FAIRX short term.  That said I've been buying up more aig warrants (wish I had loaded up more when they were down at 7 where I got my first set), and will probably buy some more BAC's too, so I think I'll get most of what fairx would give me short term.  I'm thinking I'll sell at least half my fairx holdings and maybe move some other money around to get into faafx before the close.  The fact that it's so much smaller should really give it an edge.. I mean we're talking 3.5% the assets!  That's a very large difference..  Assuming he keeps the small fund going forward...  I also think that it's true that this is closer to how Bruce would manage his money on his own.  That said, I do share the concern that he will get rid of or roll over FAAFX into some other vehicle..  We shall see...

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Today I bought the bare minimums of each fund.  Now my foot is in the door and I can add to them after the funds close.

 

Is there some way to do this electronically from overseas (i.e. without printing and signing the forms on their site)? I'm with IB so want to go direct. When I click on that link on their site it directs me to BONY Mellon and it seems as though I need an account already.

 

Thank you - C.

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That said, I do share the concern that he will get rid of or roll over FAAFX into some other vehicle..  We shall see...

 

I don't see this happening, but I guess anything is possible.  I would more readily bet on a parallel permanent capital vehicle being brought up alongside.

 

Seems to me the most logical move from here is more evolutionary - for St. Joe to hire Fairholme Capital to manage investment of the excess cash on their balance sheet.  Even a move like that doesn't seem like more than a coin-flip to me, though.

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Today I bought the bare minimums of each fund.  Now my foot is in the door and I can add to them after the funds close.

 

ERIC, I doubt you would ever like to add further on any of these funds, the rate at which you are currently compound it doesn't makesense!

Might be BB wish you open a fund and he invest in yours! I wish that as well!

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Today I bought the bare minimums of each fund.  Now my foot is in the door and I can add to them after the funds close.

 

ERIC, I doubt you would ever like to add further on any of these funds, the rate at which you are currently compound it doesn't makesense!

Might be BB wish you open a fund and he invest in yours! I wish that as well!

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Reports for 2012 are up:

 

http://www.fairholmefunds.com/reports

 

Given current liquidity and the potential for performance dilution to shareholders, the Fund has determined to suspend the sale of shares to new investors after the last day of this February. The Fund will remain available for purchase to existing shareholders, may make exceptions to this suspension, and reserves the right to recommence sales to new investors in the future.
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I really don't have any qualifications.  I would pay attention to what Sanjeev said about private investment records.

 

I agree with Sanjeev as well but their are always some exceptions and you seems to be one of them. You seems to have some knack in finding not just undervalues asserts but also able to see clear catalyst and move your money accordingly. I doubt the second part most of the people even in this board will be able to claim that way you can do! I guess their will be lot of people intrested if you open a shop.

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Bruce said today he has virtually no regulatory restriction on how much AIG he can own in the fund.

With BAC or any bank, he does have % restrictions for regulators, so this is mirrored by his holdings.

From what I heard today, he likes both AIG and BAC equally - and one shouldn't construe that he

thinks any less of BAC, because the position size is smaller than AIG. 

 

He made these comments today at Columbia University event.

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I used some of my DELL proceeds to buy the minimum amount of FAAFX.  Bought both FAAFX and FAIRX for my parents and siblings.

 

One thing to note about FAAFX is that a substantial amount of the portfolio is in MBI, so we could see some interesting NAV movement there in the next few months.

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I got into FAAFX.  Get ready everyone, that means MBI will be crashing soon!  along with BAC and AIG!  You can thank me later when you get them at a lower price ;-)  I sold some positions here and there that were approaching fair value or had other issues to lessen the impact.  However I kept FAIRX for now.  I do still like the stocks in FAIRX and plus I had acquired my FAIRX position over about 15+ transactions and didn't want to deal with figuring out the cost basis or fifo for them when I had other stuff I could sell which wouldn't give me a headache come tax time  :-).

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can someone explain to me what the motivation is to invest in fairholme before its lockup?  they will still disclose their holdings publicly...any investor could copy-cat them on particular holdings...its not as though one would miss out.

 

I can understand the motivation for someone uninformed in finance, or without desire to monitor the portfolio, but for some capable/willing of monitoring/understanding what Fairholme is investing in, why worry about getting in before lockout when copy-cat strategy is always an option?

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Guest wellmont

can someone explain to me what the motivation is to invest in fairholme before its lockup?  they will still disclose their holdings publicly...any investor could copy-cat them on particular holdings...its not as though one would miss out.

 

I can understand the motivation for someone uninformed in finance, or without desire to monitor the portfolio, but for some capable/willing of monitoring/understanding what Fairholme is investing in, why worry about getting in before lockout when copy-cat strategy is always an option?

 

I think that some people don't mind having some of their money run by someone else, even if they are an accomplished investor. it can be a check and balance or a form of diversification. it's also an option. down the road you may want to do something else and let someone else manage your money. maybe you don't want the headaches anymore. maybe you aren't as good as you think. in short, it's a low priced option and it's not like that money is going down the drain. it's a very good place to put money.

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Everyone seems to be making the assumption that BB will never open the fund back up to new investors. There are other funds that have stopped accepting new money when there is a lack of opportunities and then opened things back up when the circumstances warrant.

 

What is to stop them from doing this?

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