Berkowitz closing the gates on his funds

Fresh off a chart-topping year, Bruce Berkowitz next month will close his mutual funds to new investors

Jan 30, 2013 @ 4:31 pm

By Jason Kephart

Mutual funds
+ Zoom
Bruce Berkowitz announced Wednesday he is closing his mutual funds to new investors. (Bloomberg)

Fresh off a chart-topping year, Bruce Berkowitz next month will close his mutual funds to new investors.

The $7.6 billion Fairholme Fund (FAIRX), the $241 million Fairholme Focused Income Fund (FOCIX) and the $267 million Fairholme Allocation Fund (FAAFX) will stop accepting new investors Feb. 28, Fairholme Funds Inc. announced Wednesday. Mr. Berkowitz could not be reached for comment.

The timing of the closures is slightly unusual. Managers typically close a new fund to prevent excessive new deposits from forcing them to buy securities beyond those they view as good investments.

The Fairholme funds, however, have been seeing net redemptions since 2011.

The outflows started that year as the Fairholme Fund plummeted to a 32% loss, its worst single year of performance, even topping 2008's 29% loss. Investors pulled pulled $6 billion from the fund in 2011, according to Morningstar Inc.

Mr. Berkowitz rebounded last year as the same stocks that sunk the fund in 2011, such as AIG, Sears and Bank of America, rallied, sending the fund to a 35% gain, best among large-cap mutual funds.

The performance wasn't enough to stave off the outflows, though, as investors pulled $2.5 billion from the fund.

The timing of the closures is unusual but not surprising, Morningstar Inc. fund analyst Kevin McDevitt wrote in a research note Wednesday.

“Manager Bruce Berkowitz has alluded to this possibility a number of times over the past 18 months, feeling burned by the massive outflows of the past two years,” he wrote. “He says he would now rather have a smaller, core group of long-term shareholders who have a thorough understanding of his deep-value process and are less likely to bolt during periodic bouts of underperformance.”

Get Daily News & Intel

Breaking news and in-depth coverage of essential topics delivered straight to your inbox.

X

Subscribe and SAVE over 72%

View our best offer
Subscribe to Print