14
Fairholme Funds Closing to New Investors
Fairholme Funds announced that it will close all three
of its funds to new investors at the end of February.
The move comes despite the fact that the funds
remain in net redemption and
Fairholme
FAIRX
is
well below its peak asset level.
Bruce Berkowitz has made clear in the past couple of
years that he thinks it was a mistake to stay open as
long as he did, in part because of the hot money that
poured in through
2009
and
2010
. His focused long-
term investing style isn’t well-suited to hot money. I
imagine he would like to build a patient long-term
shareholder base similar to the one that Longleaf Part-
ners has. That said, I thought the total amount he
was running was too big for a fund that had some big
winners among small- and mid-cap names.
We continue to rate the Fairholme fund as Silver.
When it was mired in its
2011
slump, I wrote that I
felt better about a couple of key problems that
had hurt the fund. Berkowitz had sworn off being a
manager of a company again, and he was making
it clear that he wanted a smaller shareholder base.
Today, the fund looks more like its old self, and it
even has raised its cash position. That said, the port-
folio is highly concentrated, and the fund had a huge
gain in
2012
, so a pullback wouldn’t be a surprise.
Mind the Gap 2012
We’ve updated our look at the difference between
investor returns and the average fund’s performance.
Through the end of
2012
, the average investor lagged
the average fund by a total of
0
.
95%
annualized. The
average fund returned
7
.
05%
, but the average investor
netted
6
.
1%
. That’s a good chunk of the return.
If we break down the gaps further by asset class,
we see some interesting details. The biggest gap was
in international stocks, where the typical fund
returned
10
.
0%
annualized over the past
10
years
versus
6
.
8%
for the average investor. Why the gap?
Fund Manager Changes
Fund News
Fidelity Small Cap Value
FCPVX
Impact: Neutral 01-15-13
Derek Janssen was named comanager. Fidelity says he will assist lead manager Chuck Myers but won’t be
given a sleeve to run on his own.
|
Our Take: Help for Myers is welcome, but we’d hate to see signs of a
transition. Janssen has been an analyst with Fidelity since 2007, whereas Myers has a strong record here
and at the now-closed Fidelity Small Cap Discovery. We continue to rate the fund Silver.
Laudus Growth Investors
LGILX
Impact: Negative 12-05-12
Lead manager Lawrence Kemp has left subadvisor UBS. The reins of the fund were handed to two experi-
enced analysts: Peter Bye and Sam Console.
|
Our Take: Losing Kemp is a big blow as he built a great
record and his team had been a model of stability. UBS has seen departures in other areas, so we’re a little
wary of this fund now. Thus, we have lowered the rating to Neutral from Bronze. If UBS can keep the
rest of the team together, this fund may yet prove to be a winner, but Kemp’s departure is worrisome.
Oakmark Select
OAKLX
Impact: Neutral 01-28-13
Win Murray, Harris Associates’ director of U.S. equity research, and senior research analyst Tony Coniaris
joined Bill Nygren in running the fund.
|
Our Take: The announcement was not unexpected. On July 31, 2012,
longtime comanager Henry Berghoef, who had assisted Nygren in managing the fund since 2000, stepped
down. Harris stated at the time that it planned to appoint a successor by May 2013. It’s likely that the two
new comanagers will act primarily as assistant managers to Nygren for now. Still, Nygren emphasized
that the decision to add Murray and Coniaris was made with an eye toward the fund’s long-term steward-
ship. In a statement, he said, “While I expect to be at Oakmark for many more years, we need to think
about succession for the funds. ... Win and Tony are both younger than I am, and bringing them in as coman-
agers now will ensure investment continuity for Select far into the future.”
Vanguard Global Equity
VHGEX
Impact: Neutral 12-11-12
Lead manager Jeremy J. Hosking retired on Dec. 11, 2012. Hosking had advised the fund since its inception
in 1995. Neil M. Ostrer and William J. Arah, who also have advised the fund since inception, will remain as
portfolio managers for Marathon’s portion of the fund (44%). In addition, Vanguard fired AllianceBernstein
and handed its 6% of the fund over to Baillie Gifford, which now runs 19%.
|
Our Take: Hosking was a key
contributor, even though experienced managers are ready to fill in. Moving 6% from AllianceBernstein to
Baillie Gifford is definitely a positive; Baillie Gifford has a much better track record and greater stability.
Vanguard Health Care
VGHCX
Impact: Negative 12-31-12
Ed Owens, manager here for 28 years, retired at the end of 2012. Successor Jean Hynes has comanaged the
fund with Owens since 2007 but has worked with him for far longer. She has been on subadvisor Wellington
Management’s health-care team since 1992. Along with the rest of Wellington’s four-person team, Hynes
has helped run Hartford Healthcare
HGHAX
with success since its 2000 inception, employing a similar
approach to Owens’. Hynes has vowed to keep the strategy unchanged.
|
Our Take: It’s a blow to lose a
great investor like Owens, but having the manager and analysts who contributed to its success for years
gives us confidence in the fund.
Vanguard International Value
VTRIX
Impact: Neutral 01-14-13
Vanguard is making its second tweak to the lineup of this fund. Last August, it dumped AllianceBernstein,
and now it has fired Hansberger Global Advisors. That leaves the fund in the hands of three subadvisors:
Lazard Asset Management, Edinburgh Partners, and ARGA Investment Management. (Vanguard never
explains why it fires a subadvisor because it doesn’t want to scare off future subadvisors.)
|
Our Take:
Among the fund’s subadvisors, Hansberger had been the biggest fan of emerging markets, so the fund’s
14% emerging-markets stake may decline a bit. Hansberger’s 17% sleeve has been redistributed to
Edinburgh and Lazard. We continue to rate the fund Bronze.
