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Data through November 30, 2015 FINRA members: For internal or institutional use only.
Fairholme Focused Income Ticker
FOCIX
Yield
4.0%
SEC Yield
—
Total Assets
$243 mil
Mstar Category
High Yield Bond
Benchmark 1: BofAML US HY Master II TR USD
Benchmark 2: Barclays US Agg Bond TR USD
Morningstar Analyst Rating 11-20-15
´
Morningstar Pillars
Process ∞ Positive
Performance ¶ Neutral
People ∞ Positive
Parent ∞ Positive
Price § 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 „ ´ ‰ Á
Pillar Spectrum
∞ Positive § Negative ¶ Neutral
10.0
12.0
14.0
16.0
Historical Profile
Return
Risk
Rating
High
High
QQQQQ
Highest
Investment Style
Fixed Income
Growth of $10,000
Investment Values of
Fund
Investment Values of
Benchmark 1
) ) & ) & Performance Quartile
(within Category)
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 11-15 History
. . . . . 10.71 9.91 9.47 11.17 10.41 10.72 NAV
. . . . . . -0.72 5.19 29.92 -3.39 6.16 Total Return %
. . . . . . -5.10 -10.40 22.50 -5.90 8.27 +/- Bmark 1
. . . . . . -8.56 0.97 31.94 -9.36 5.28 +/- Bmark 2
. . . . . . 6.94 10.14 4.50 2.20 3.23 Income Return %
. . . . . . -7.66 -4.95 25.42 -5.59 2.93 Capital Return %
. . . . . . 88 99 1 98 1 Total Rtn % Rank Cat
. . . . . 0.36 0.73 0.97 0.42 0.24 0.33 Income $
. . . . . 0.04 0.00 0.00 0.68 0.15 0.00 Capital Gains $
. . . . . 1.00 1.00 1.00 1.00 1.00 1.00 Expense Ratio %
. . . . . 4.69 5.96 9.53 4.28 1.94 3.95 Income Ratio %
. . . . . 77 92 8 43 39 . Turnover Rate %
. . . . . 352 298 241 237 209 243 Net Assets $mil
Performance 11-30-15
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total
2011 4.93 -1.37 -9.41 5.90 -0.72
2012 5.98 0.48 3.50 -4.55 5.19
2013 7.48 15.79 0.94 3.41 29.92
2014 4.61 0.75 -1.47 -6.97 -3.39
2015 4.79 0.24 3.79 — —
Trailing Total
Return%
+/- Bmark
1
+/- Bmark
2
%Rank
Cat
Growth of
$10,000
3 Mo -2.40 -0.21 -2.83 69 9,760
6 Mo -1.61 4.35 -1.49 5 9,839
1 Yr 4.60 8.16 3.63 1 10,460
3 Yr Avg 8.91 5.84 7.41 1 12,920
5 Yr Avg 7.26 1.50 4.17 1 14,196
10 Yr Avg — — — — —
15 Yr Avg — — — — —
Tax Analysis Tax Adj Rtn% %Rank Cat Tax-Cost Rat %Rank Cat
3 Yr (estimated) 6.59 1 2.14 15
5 Yr (estimated) 4.71 1 2.37 37
10 Yr (estimated) — — — —
Potential Capital Gain Exposure: -2% of assets
Rating and Risk
Time
Period
Load-Adj
Return %
Morningstar
Rtn vs Cat
Morningstar
Risk vs Cat
Morningstar
Risk-Adj Rating
1 Yr 4.60
3 Yr 8.91 High High QQQQQ
5 Yr 7.26 High High QQQQ
10 Yr — — — —
Incept 7.67
Other Measures Standard Index Best Fit Index
Alpha 10.8 2.4
Beta -0.98 0.56
R-Squared 5 13
Standard Deviation 13.22
Mean 8.91
Sharpe Ratio 0.70
Portfolio Analysis 08-31-15
Total Fixed Income: 8
Date of
Maturity Amount 000
Value
$000
%
Assets
Imperial Metals Corp New 03-15-19 50,200 47,936 19.85
Sears Hldgs 8% 12-15-19 45,239 44,053 18.24
Sears Hldgs 6.625% 10-15-18 7,535 7,500 3.11
Atwood Oceanics 6.5% 02-01-20 8,655 7,422 3.07
Chesapeake Engy 7.25% 12-15-18 6,350 5,429 2.25
Jefferies Fin Llc/Jfin Cp 04-01-20 5,000 4,895 2.03
Chesapeake Engy 6.625% 08-15-20 3,556 2,858 1.18
Hrg Grp 144A 7.75% 01-15-22 1,730 1,703 0.71
Current Investment Style
Quality High Med Low
Duration
Ltd Mod Ext
1 figure provided by
fund
Avg Eff Duration1 —
Avg Eff Maturity —
Avg Credit Quality —
Avg Wtd Coupon 7.34%
Avg Wtd Price 95.17% of par
Coupon Range % of Bonds
0% PIK 0.0
0% to 4% 0.0
4% to 6% 0.0
6% to 8% 100.0
8% to 10% 0.0
More than 10% 0.0
Credit Analysis % bonds
AAA — BB —
AA — B —
A — Below B —
BBB — Not Rated —
Sector Breakdown % Assets
Government 0
Government Related 12
Corporate 60
Agency MBS 0
Non-Agency Residential MBS 0
Commercial MBS 0
Covered Bond 0
Asset Backed 0
Municipal 0
Cash & Equivalents 28
Other 0
Composition - Net
Cash 25.7 Bonds 50.4
Stocks 9.4 Other 14.5
Special Securities
Restricted/Illiquid Secs 25
Emerging-Markets Secs 0
Options/Futures/Warrants 0
Morningstar's Take by Kevin McDevitt, CFA 11-20-15
Fairholme Focused Income earns a Morningstar Analyst
Rating of Bronze thanks to its eclectic yet rewarding
return stream.
This fund has bounced back impressively after a poor
2014 showing. Continuing its feast-or-famine tradition,
the fund has the high-yield Morningstar Category's
highest one-year return (9.3% through October 2015),
beating its closest competitor by 6 percentage points.
This owes in part to the fund's combined 12.5% position
in Fannie Mae/Freddie Mac preferreds, which were up
50% and 21%, respectively. This reversal is a reminder
that whether the fund is doing well or not, manager Bruce
Berkowitz is playing an entirely different game than most
competitors.
Berkowitz invests exclusively in fallen angels, as
opposed to bonds that are high yield when issued. The
fund's income also tends to be much lower than most
peers. Berkowitz is more focused on the capital
appreciationthatcomeswhenaholding isrerated.Finally,
the portfolio is highly concentrated, with about 45% of
assets in just two issuers, Sears and Imperial Metals, as
of August.
This combination makes the fund far more volatile
than most peers. Its five-year standard deviation, a
measure of volatility, was 12.2% through October 2015,
double that of the BofAML U.S. HY Master II Index. In
fact, the fund's standard deviation is much more in line
with an equity index, such as the broad-based Russell
3000 Index, which had a nearly identical five-year
standard deviation of 12.3%.
Looking at the fund as an equity proxy wouldn't be
accurate either. Instead, the fund might be thought of as
a source of somewhat uncorrelated returns. Since its
2010 inception, the fund has a R-squared--a measure of
correlation--of just 19 with both the BofAML U.S. HY
Master II Indexand theRussell3000 Index.Thus, the fund
could provide diversification for investors looking for an
alternative to stocks and bonds.
However, that requires detaching from the fund's
wild year-to-year fluctuations. For those who can do so,
it can fill a useful niche.
Address: Fairholme Funds Inc Minimum Purchase: $25000 Add: $2500IRA: $25000
Miami, FL 33137 Min Auto Inv Plan: $25000 Add: $250
866-202-2263 Sales Fees: No-load
Web Address: Management Fee: 1.00%
Inception: 01-04-10 Actual Fees: Mgt:1.00% Dist:—
Advisor: Fairholme Capital Management LLC Expense Projections: 3Yr:$322 5Yr:$558 10Yr:$1236
Subadvisor: None Income Distribution: Quarterly
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