"Tracking Bruce Berkowitz’s Fairholme Portfolio – Q1 2018 Update"
"Bruce Berkowitz’s 13F stock portfolio value decreased this quarter from $726M to $701M.Fairholme added Vista Outdoor and Vistra Energy while reducing Sears and Seritage Growth Properties.The portfolio is very concentrated with St. Joe Companies, Sears Holdings, and its spinoff Seritage Growth Properties forming almost 90% of the entire portfolio.This article is part of a series that provides an ongoing analysis of the changes made to Fairholme’s 13F stock portfolio on a quarterly basis. It is based on Fairholme’s  regulatory  filed on 05/15/2018. Please visit our  article for an idea on how his holdings have progressed over the years and our  for the fund’s moves during Q4 2017.Berkowitz’s 13F stock portfolio value decreased ~4% from $726M to $701M this quarter. The portfolio continues to be very concentrated with ~90% of the holdings invested in St. Joe Companies, Seritage Growth Properties, and Sears Holdings.Berkowitz’s flagship Fairholme Fund (FAIRX) has generated significant alpha since its December 1999 inception: thru Q1 2018, the fund returned 	~403% compared to ~156% for S&P 500 index. FAIRX has however underperformed over the most recent 10-year period. Large equity holdings that are not in the 13F report include Fannie Mae (FNMA) pfds (FNMAS), Freddie Mac (FMCC) pfds (FMCKJ), Imperial Metals (IPMLF), and in International Wire Group (ITWG). They also have a small stakes in Bristow Group (BRS), and Monitronics International. Cash and Equivalents are at ~31% and Fannie/Freddie Pfds at ~21% of AUM. The other funds under Fairholme umbrella are Fairholme Focused Income Fund (FOCIX) and Fairholme Allocation Fund (FAAFX).Stake Disposals:None.New Stakes:Vista Outdoor (VSTO) and Vistra Energy (VST): VSTO is a fairly large 6.50% portfolio stake established this quarter at prices between $14 and $20 and the stock currently trades near the low end of that range at $15.26. The ~3% VST positon was purchased at prices between $17.50 and $21 and it is now above that range at $23.95.Note 1: Vista Outdoor is a 2015 spinoff from Alliant Tech Systems. Early this year, several sports retailers stopped selling Vista Outdoor products in response to calls by activists for NRA boycott. On May 1st, VSTO announced plans to sell their gun manufacturing subsidiaries by end of FY 2020.Note 2: Since emerging from bankruptcy reorg in December 2016, Vistra Energy has returned ~50%.Oaktree Capital Group (OAK), AT&T Inc. (T), and Clipper Realty (CLPR): These are minutely small (less than 0.5% of the portfolio each) stakes established this quarter.Stake Increases:None.Stake Decreases:St Joe Companies (JOE): JOE is the largest stake at ~74% of the 13F portfolio. The bulk of the position was purchased in the 2008-2009 timeframe and there have only been minor adjustments since. Last three quarters had seen a combined ~14% increase at prices between $16.35 and $19.55.  Currently, it trades at $18.05. Berkowitz’s ownership stake is at ~42% of the business. This quarter saw minor trimming.Note: Fairholme’s thesis is centered on the idea that JOE has little debt, low fixed expenses, low-cost land, and $300M in cash reserve. That combination should allow long-term value creation.Seritage Growth Properties (SRG): SRG is a top-three ~8% position. Seritage was spun-off from Sears Holdings through a Rights Offering in July 2015 and Fairholme participated in the transaction. Trading started at $37 per share and it currently trades at $42.74. H1 2017 saw a ~12% increase while last quarter had seen similar trimming. This quarter saw a ~50% reduction at prices between $34.50 and $43.Sears Holdings Corp (SHLD): Sears is Berkowitz’s third-largest 13F position at ~7% of the portfolio. The original stake was established in 2007 although the position size has fluctuated over the years. The current stock price ($3.49) is far below Fairholme’s cost-basis of ~$61. There was a ~13% trimming last quarter and that was followed with a ~27% selling this quarter at prices between $2.07 and $3.80.Note 1: In their Q4 2017 report, Faiholme acknowledged their failure to foresee operating losses that significantly diminished the value of the assets - even though they got the asset values largely correct, their thesis was proved wrong. As a percentage of Fairholme’s overall AUM, the SHLD positon is now a much diminished stake (~5%) and so will have less portfolio impact going forward. Bruce Berkowitz stepped down from the board of directors of Sears in October last year.Sears WTS 28.41 Strike: The very small 0.28% position in Sears WTS had seen a ~12% reduction last quarter and that was followed with a ~4% trimming this quarter.Kept Steady:Jefferies Financial Group (JEF) previously Leucadia National (LUK): JEF is a very long-term holding that was built-up over several years. The position had seen large reductions since Q2 2013. Recent activity follow: Q4 2015 saw a ~55% reduction at prices between $16 and $21 and the remaining stake was almost eliminated the following quarter at prices between $14.50 and $17.50. It currently trades at $23.24.The spreadsheet below highlights changes to Fairholme’s US stock holdings in Q1 2018:Regulatory Filings thru 2/17/2018: 13G/A – 2/15/22018 – SRSC – 0, SRG – 3.27M shares – 10.8% of business, 13G/A – 1/16 – SHLD – 21.3M shares – 19.8% of business - 2.59M shares is owned by Bruce individually, Form 4 – 12/14, 12/8 & 13D/A 12/8, Form 4 12/5, 11/29, 11/22, 11/17 – JOE – 135K shares acquired @ 18.73, 106K shares acquired @ 18.5, 200K shares acquired @ 18.5, 260K shares @ 18.9, 200K shares @ 18.8, 200K @ 18.5, 27.7M shares – 41.8% of business, .1/29/2018 –  : AUM: Around $2B distributed as follows: FAIRX $1.7B, FOCIX - ~$280M, and FAAFX - ~$109M. Flagship FAIRX Performance: disappointing performance often pays and this has been true since inception. Negative 5.96% for 2017 compared to 21.83% for S&P. Since inception (12/1999) up 460.74% compared to 158.91% for S&P. Net Assets at FAIRX: As of 1/26/2018, net assets are $1.7B – has $710M of tax-loss attributes to shelter future gains from taxes. Cash:27.1% currently in FAIRX.  Sears: 6.6% of FAIRX. Did not foresee operating losses that have significantly diminished the value – got the asset values largely correct but missed the company’s inability to stop retail losses. Now a much diminished position nowhere as relevant to our financial position. St. Joe: 21.7% of FAIRX. Great combination of little debt, low fixed expenses, low-cost land, and $300M in cash reserve.  Fannie/Freddie pfds: 30.5% of FAIRX. So far has realized gains of $140M over the last four years. Expects further gains from any Trump Administration lead initiative. Reform is coming – FHFA direction said this month that conservatorship is not sustainable and needs to end and Steve Mnuchin (Treasury Secretary) said 2018 is the year for Fannie/Freddie reform. Imperial Metals - IPMLF: 8.1% of FAIRX. Red Chris mine – mother lode of copper & gold in British Columbia – slowing supply growth with increasing industrial demand should result in a boost to cashflow & valuation. Copper has moved up to over $3 at the moment.  Seritage: 4.7% of FAIRX. When Sears closes Seritage stores and re-rented, the market rate is 3x of what they are getting from Sears and therein lies the opportunity that Buffett sees by his personal investment (he is one of the largest owners). International Wire Group (ITWG): 2% of FAIRX. Monitronics Intl. - pvt: 1.8% of FAIRX."