No financial stocks? Ex-Fairholme managers not just like Bruce

In steering clear of large financial services companies in their new fund, former Fairholme Capital Management LLC portfolio managers are taking a very different approach than their one-time boss.
Larry Pitkowsky and Keith Trauner launched their first mutual fund from their new firm, Goodhaven Capital Management LLC, in April. And in a May 31 portfolio disclosure, the managers of the $45 million fund unveiled that the fund owns no large financial institutions. That’s a radical departure from ex-employer Bruce Berkowitz, whose flagship Fairholme Fund counts the likes of American International Group Inc. Ticker:(AIG) and The Goldman Sachs Group Inc. Ticker:(GS) among its top holdings.
“We have no religious aversion to financials,” said Mr. Trauner, co-managing director and co-portfolio manager at Goodhaven. “Show us a bank with great management, a transparent balance sheet and at a good price — we would look at it.”
The Goodhaven Fund Ticker:(GOODX) does have a few financials in its top holdings. Its third-biggest holding — at 4.2% — is Walter Investment Management Corp. Ticker:(WAC), a subprime lender and servicer. Goodhaven likes Walter largely because it helps banks service loans and as such is in a good position to do well in this environment, they said. Walter recently agreed to acquire Green Tree Servicing LLC, another loan servicer.
Goodhaven’s second-biggest financial holding is Federated Investors Inc. Ticker:(FII), which it believes will do well despite pending regulation of money funds when interest rates rise.
“We don’t think regulation is going to kill this business,” Mr. Trauner said.
The Goodhaven Fund’s third-biggest financial holding is Berkshire Hathaway Inc. Ticker:(BRK.B) at 2.4%.
And while the Fairholme Fund Ticker:(FAIRX) has traditionally stayed away from technology companies, Goodhaven’s biggest holding was Microsoft Inc. Ticker:(MSFT) at 7%. The fund also had 4.2% of its portfolio in Google Inc. Ticker:(GOOG) and 3.5% in Hewlett-Packard Co. Ticker:(HPQ)
“Ten years ago, all of these companies were hugely popular and enormously risky,” Mr. Trauner said. “Now they are unpopular and cheap.”
And given the consolidation in the technology industry over the years, finding winners is easier than it was 10 years ago, Mr. Pitkowsky said.
So far, Goodhaven’s approach appears to be serving it well. For the three-month period through July 15, the Goodhaven Fund had returned 4.06%, compared with a flat S&P 500 and an 8% decline for the Fairholme Fund, according to Morningstar Inc.
A call to Fairholme at 2:00 EST seeking comment was not immediately returned.
Ryan Leggio, an analyst at Morningstar, said the lack of financial stocks in Goodhaven might actually be a selling point for the fledgling fund.
“This could be compelling for financial advisers who think Fairholme has become a financial services sector fund,” he said.