5
Morningstar FundInvestor
July 2
013
Morningstar Analyst Rating
06-14-13
´
Morningstar Pillars
Process
Performance
People
Parent
Price
¶
§
Positive
Neutral
Positive
Positive
Negative
Morningstar Analyst Rating
Morningstar evaluates mutual funds based on five key pillars, which
its analysts believe lead to funds that are more likely to outperform
over the long term on a risk-adjusted basis.
Analyst Rating Spectrum
Œ „ ´ˇ ¨
Pillar Spectrum
Positive
§
Negative
¶
Neutral
NAV
11.44
9.47
9.91
10.71
. . . . . . . .
Total Return %
24.46
5.19
-0.72
. . . . . . . . .
+/-BC Agg Bnd
26.90
0.98
-8.56
. . . . . . . . .
+/-BofAML HY Master
22.96
-10.40
-5.10
. . . . . . . . .
Income Return %
3.48
10.14
6.94
. . . . . . . . .
Capital Return %
20.98
-4.95
-7.66
. . . . . . . . .
Total Rtn % Rank Cat
1
99
88
. . . . . . . . .
Income $
0.33
0.97
0.73
0.36
. . . . . . . .
Capital Gains $
0.00
0.00
0.00
0.04
. . . . . . . .
Expense Ratio %
.
0.91
0.67
0.50
. . . . . . . .
Income Ratio %
.
9.53
5.96
4.69
. . . . . . . .
Turnover Rate %
.
8
92
77
. . . . . . . .
Net Assets $mil
243
241
298
352
. . . . . . . .
Performance
06-30-13
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
Total
2009
2010
2011
2012
2013
. . . . .
.
-0.29
4.38 2.99
.
4.93 -1.37
-9.41 5.90 -0.72
5.98 0.48
3.50 -4.55
5.19
7.48 15.79
. . .
*
Trailing
Total
+/- BC +/- BofAML %Rank Growth of
Return% Agg Bnd HY Master
Cat
$10,000
3 Mo
6 Mo
1 Yr
3 Yr Avg
5 Yr Avg
10 Yr Avg
15 Yr Avg
15.79 18.11 17.10
1 11,579
24.46 26.90 22.96
1 12,446
22.94 23.63 13.35
1 12,294
11.80 8.29
1.37
5 13,974
. . . . .
. . . . .
. . . . .
Tax Analysis
Tax-Adj Rtn% %Rank Cat Tax-Cost Rat %Rank Cat
3 Yr (estimated)
5 Yr (estimated)
10 Yr (estimated)
8.82
6
2.66
79
. . . .
. . . .
Potential Capital Gain Exposure: 3% of assets
Rating and Risk
Time Load-Adj
Morningstar
Morningstar
Morningstar
Period Return % Rtn vs Cat
Risk vs Cat
Risk-Adj Rating
1 Yr
22.94
3 Yr
11.80
High
High
5 Yr
. . . .
10 Yr
. . . .
Incept
11.13
Other Measures
Standard Index
Best Fit Index
BC Agg Bnd BofAML Convert Bd
Alpha
17.7
1.7
Beta
-1.67
0.88
R-Squared
11
34
Standard Deviation
14.11
Mean
11.80
Sharpe Ratio
0.85
Morningstar’s Take
by Kevin McDevitt, CFA 06-14-13
Fairholme Focused Income is free to live on its own
terms.
This fund closed to new investors at the end of
February, making it less vulnerable to disruptive asset
flows. Investors have pulled about $300 million from
the fund over the past two years. This forced manager
Bruce Berkowitz to sell positions in 2011 and 2012 that
he would rather have held on to. With the hot money
largely shaken out, the existing shareholder base is
likely more stable. This should make it easier for
Berkowitz to make the big contrarian bets that have
driven his superb long-term results at equity sibling
Fairholme FAIRX.
But those long-term rewards are composed of lumpy
returns, as this fund recently showed. In May 2013, a
43% position in MBIA MBI bonds took off after the
company won a $1.7 billion settlement with Bank of
America BAC, which Berkowitz had long predicted,
over misrepresentations on mortgages. Up until that
point, the fund’s returns had been among the high-yield
category’s worst since its 2010 inception. But after the
fund’s 18.2% gain in May alone, its now 12.1%
annualized return since inception is in the category’s
top decile. With the portfolio down to just two issuers,
MBIA and Sears Holdings SHLD, such feast-or-famine
performance will likely continue.
The fund’s defenses, though, are stronger than they
have been in some time. Berkowitz built the fund’s
cash cushion to a whopping 40% of assets in
February--its highest level since August 2010--both
through maturing holdings and by selling former
top-holding Emigration Bancorp’s bonds. Beyond
providing substantial ballast, this pile of cash
dramatically decreases the odds of having to sell
positions to meet future redemptions. Plus, it gives
Berkowitz flexibility should buying opportunities arise.
With its ultraconcentrated portfolio, this fund
remains suitable for a small minority. But with its
doors closed to newbies, Berkowitz has more freedom
to follow his muse.
Address:
Fairholme Funds Inc
Miami, FL 33137
866-202-2263
Web Address:
Inception:
01-04-10
Advisor:
Fairholme Capital Management LLC
Subadvisor:
None
NTF Plans:
N/A
Minimum Purchase:
Closed
Add:
.
IRA:
.
Min Auto Inv Plan:
Closed
Add:
.
Sales Fees:
No-load
Management Fee:
1.00%
Actual Fees:
Mgt:1.00% Dist:
.
Expense Projections:
3Yr:$322
5Yr:$558 10Yr:$1236
Income Distribution:
Quarterly
Data through June 30, 2013
Fairholme Focused Income
Ticker Status Yield SEC Yield Total Assets Mstar Category
FOCIX Closed 7.1%
.
$243 mil
High Yield Bond
1
1
6
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 06-13
Historical Profile
Return
Risk
Rating
High
High
Above Avg
Investment Style
Fixed Income
Income Rtn %Rank Cat
Manager Change
Partial Manager Change
Growth of $10,000
Investment Values of
Fund
Investment Values of
BC Agg Bnd
Performance Quartile
(within Category)
History
10.0
11.0
12.0
13.0
14.0
Portfolio Analysis
02-28-13
Date of
Amount
Value % Net
Total Fixed-Income:10
Maturity
$000
$000 Assets
Sears Hldgs 6.625%
10-15-18 44,000 42,350 17.00
Mbia 7.15%
07-15-27 49,716 39,713 15.94
Mbia 6.625%
10-01-28 47,500 36,257 14.56
Fidelity Instl MM Fds Mo
20,148 20,148 8.09
Mbia Ins 144A FRN
01-15-33 60,600 17,901 7.19
Mbia 6.4%
08-15-22 8,486 6,774 2.72
Mbia 7%
12-15-25 7,105 5,675 2.28
Amer Intl Grp ([Wts/Rts]
01-19-21
23
321 0.13
Current Investment Style
1
1
Avg Eff Duration
.
Avg Eff Maturity
.
Avg Credit Quality
.
Avg Wtd Coupon
7.66%
Avg Wtd Price
77.61% of par
figure provided
by fund
Duration
Ltd Mod Ext
Quality
High
Med Low
Special Securities
Restricted/Illiquid Secs
7
Exotic Mortgage-Backed
0
Emerging-Markets Secs
0
Options/Futures/Warrants
No
Credit Analysis
% bonds 02-28-13
AAA
.
AA
.
A
.
BBB
.
BB
.
B
.
Below B
.
NR/NA
.
Sector Breakdown
% of assets
Government
0
Corporate Bond
60
Bank Loan
0
Convertible
0
Preferred
0
Agency MBS
0
Non-Agency Residential MBS 0
Commercial MBS
0
Asset-Backed
0
Covered Bond
0
Municipal
0
Cash & Equivalents
40
Other
0
Composition - Net
Cash 40.2
Bonds 59.7
Stocks 0.1
Other
0.0
Coupon Range
% of Bonds Rel Cat
1.00=Category Average
0% PIK
0.0 0.0
0% to 8%
88.0 1.5
8% to 11%
0.0 0.0
11% to 14%
12.0 2.4
More than 14%
0.0 0.0
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2013Morningstar, Inc.All rights reserved. The information herein isnot represented orwarranted to be accurate, correct, complete or
timely. Pastperformance isnoguarantee of future results.Access updated reports at
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