A number of articles from The Wall Street Journal, Barron’s, and InvestmentNews covered a recent reopening of the Fairholme Fund, closed to new investors since the end of February 2013. Should potential investors care?
In a continuation of a prior Alpholio™ post, here is an updated cumulative RealAlpha™ chart for the fund:
The trend of a relatively flat cumulative RealAlpha™ since early 2012 has persisted through the end of July 2013. Here are the updated reference weights for the fund:
Although the equivalent position in the Vanguard Financials ETF (VFH) decreased from the peak of almost 97% in April to about 57% in July, it still dominates the fund’s portfolio. At 22%, the PowerShares Dynamic Market Portfolio ETF (PWC) has the highest second weight, followed by the Vanguard Energy ETF (VDE; 14%).
According to the most recent filing, as of May 31, 2013 the fund held almost 90% of its assets in just ten positions:
This highly concentrated portfolio led to a much higher volatility of the fund compared to that of the reference portfolio. As the above analysis demonstrates, existing investors were hardly compensated for the elevated risk carried by the fund. To most prospective ones, the fund’s reopening should be a non-event.