FAAFX Breaking Out...and Some Thoughts on M* Coverage of Fairholme Funds

Charles

In case the board has not yet noticed, Fairholme Allocation FAAFX...


Here's link to David's 2011 profile:

http://www.mutualfundobserver.com/2011/04/fairholme-asset-allocation-faafx/

Honestly, we "long time" owners have not had too much to celebrate, as can be seen here in M* performance plot since FAAFX inception:


But last year it ranked No 2 with a handsome 45.5% return. And, it's ranked No 1 YTD. We've actually seen it go from 1 star to 2!



Ha!

Fingers-crossed.

Charles

It's interesting to me that M* has never covered FAAFX, given how much it fawned over FAIRX. Part of me thinks that M* has never forgiven BB since way under-performing in 2011, resulting in massive outflows from unsuspecting investors and perhaps an unsuspecting analysis team at M*.

They still cover FAIRX, of course, but with considerable qualification, eg.:

This is an opportunity only for those who are as comfortable with uncertainty as Berkowitz.

In the 2000's, FAIRX was more likely to be compared with SEQUX, perhaps the greatest mutual fund of all time.

And, M*'s silver rather than gold metal rating for FAIRX has never rang true to me, especially since it seems to be based on a neutral price rating. For 1.01% ER? Come on. Single share class. No load.

To its credit, M* has covered FOCIX almost from the start. It rates only a bronze. The detractors (from gold) this time appear to be the price pillar again and performance, which seems rationalized me, as the fund has 5 stars:


Thinking more about it, I suspect things M* does not like about Fairholme funds are not reflected in the five pillars, as currently defined. (In-) Consistent return, for example, which is one of the metrics in the Lipper rating system. So, M* needs to shoehorn-in a ding or two to its pillars in a way that does not fit quite right.

Just seems to me. Maybe I'm out to lunch here, as is often the case, and if so I'm sure msf will correct me, if not take me to the wood shed .

Charles

Funny too how M* has never held a similar grudge against D&C after it was slammed in 2008, well beyond expectations.

linter

FAAFX is closed, right?

Charles

Yes, to new shareholders. Fairholme reopened FAIRX last year, sad to say, but FAAFX and FOCIX remain limited.

expatsp

Maybe M* has a grudge because they named BB manager of the decade right before he had a bad year. I'm guessing too that a lot of investors (myself included) bought Fairholme because of M*'s publicity and then (unlike me) got angry at brief underperformance and perhaps even let M* know about it. Just my guess.

FAIRX and FAAFX between them make up just over a quarter of my equity mutual fund exposure, and I had my retired mother invest in FOCIX.

Charles

Congrats. Well done.

dryflower

I'm not positive, but I think there is a final subjective call on which metal to assign to a fund if any. Just because a fund scores 5 positives on the five pillars doesn't automatically earn it a gold.

I'd be surprised if M* deliberately was looking for a flaw for FAIRX in its pillar system.

I agree that the 1% fee is fair, but it's not a screaming bargain as it would be if it were .75% or .65%. DODGX, after all, is .52% - so I can't really fault them for giving a neutral to FAIRX for its (very fair) 1% fee.

I don't agree that M* "holds a grudge" or is angry with BB. M* certainly understands what he is doing and why as well as anyone does. I think they are approaching the situation just as I would if I were they. (please note good grammer)

FAIRX is very likely to be an outlier when it comes to performance. To call it "non-diversified" is to make a vast understatement. As it is presently constituted, it doesn't even look like a mutual fund at all. Several years ago when M* "fawned over it" it had a good slug of Berkshire and was at least moderately well-diversified.

I am thinking M* simply does not want to go "all-in" on FAIRX. They probably believe that "Silver" strikes a good balance between the high past performance plus their assessment of BB as a manager vs. the uncertainty of future performance as compared to a fully diversifies fund.

(Full disclosure -- big BB fan with an over-sized position in FAIRX.

Ted

@dryflower: I'm a big BB fan too !
Regards,
Ted

The Thrill Is Gone: B.B. King

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dryflower

I heard an interview with BB King on NPR once. He explained why he started playing blues instead of gospel. He said that when he played gospel on the street, people would come by and tell him thanks, and that they really enjoyed it, but they didn't tip him. When he played blues, people tossed money in the jar.

Ted, can we be friends?

scott

I don't think M* has a "grudge" or anything against FAIRX, nor do I really pay much attention to their ratings. There may be some concern regards to the extremely concentrated nature, perhaps (?)