Fairholme is closing its series the Fairholme Fund (FAIRX), Fairholme Focused Income Fund (FOCIX) and Fairholme Allocation Fund (FAAFX) to new investors as of Feb. 28.
According to the Miami firm, the funds are closing in oder to prevent inflows from new investors from diluting the proportionate interests of existing fund shareholders. In addition, the funds with their current assets are "well positioned to fund current operations and make new investments."
Each fund may choose to begin selling shares to new investors at its discretion.
According to Fairholme's annual reports on the funds, net assets for the 2-star, Silver-rated Fairholme Fund is just shy of $7 billion. In 2012, it reported gains of 35.81% versus 16.00% for the S&P 500 Index.
"The fund is being rewarded for weathering the storm," writes Morningstar analyst Kevin McDevitt, referencing the fund's rebound from losses of 32% in 2011 to a nearly 20% gain in the first half of 2012. But while company director and portfolio manager Bruce Berkowitz "has proven his mettle, the portfolio still carries exceptional risks. Berkowitz is one of the most intrepid managers around, but it takes just as fearless a shareholder to capitalize on the stress he embraces," according to McDevitt.
Bronze-rated Focused Income Fund increased 5.19% for the one-year period ended Dec. 31, 2012, compared with 4.22% for the Barclays Capital US Aggregate Bond Index. Since inception, the Fund increased 16.08% versus 19.74% for the Barclays Index. Net assets for the fund totaled $257 million at year-end 2012.
Focused Income Fund "is even more aggressive than the typical high-yield offering," McDevitt writes, highlighting its "plump yield." "There isn't anything conservative about Fairholme Focused Income's allocation. This fund's occasional forays into equities keep it in the conservative-allocation category, but it's more of a high-yield vehicle these days."
In conclusion, "Berkowitz' facility with distressed securities makes this a promising option, but only for intrepid total-return investors."
Allocation Fund increased 9.54% in 2012, versus 4.22% and 16% gains for the same Barclays Index and S&P 500 Index, respectively. But overall over its two-year lifespan, the fund has decreased 5.79%. Net assets for the Allocation Fund total $255 million. The fund focuses on small quantity ideas, including warrants on common stock of companies affected by residential real estate markets. It has not been rated by Morningstar.
Berkowitz and director Cesar Alvarez manage the three funds.