Yesterday, we posted news that Bruce Berkowitz of Fairholme had filed plans for a bond fund to be launched in January.

Today, he called to give us some background. "As usual, you guys were first with the story," he said.

Fairholme Focused Income Fund will be a multisector fund that can invest in corporate bonds, government bonds, convertibles, and preferred shares. The idea of a focused portfolio of bonds is rather unusual as most bond funds try to diversify away issue-specific risk for the benefit of conservative investors. 

However, Berkowitz said he intends to keep the fund's duration to the low side. That would seem to place the fund's risk profile a bit in between a typical intermediate bond fund and a multisector fund.

The fund will charge an expense ratio of 0.50%, or half that of  Fairholme FAIRX. However, that comes after a 0.50% waiver, which is set to expire after the fund's first year. So, the fund will start out very cheap for a multisector fund, but, if it were to go to 1.00%, it would charge more than multisector king Dan Fuss at  Loomis Sayles Bond Retail LSBRX. Someone who buys the fund in January 2009 would have to be willing to tolerate a big fee hike, be willing to sell the fund should fees go up to 1.00%, or be trusting that fees won't go all the way up to 1.00%.

At the Morningstar Investment Conference in May, Berkowitz had expressed a growing interest in bonds. He tells us that the income fund idea grew out of work he's done managing liquidity at Fairholme Fund. Moreover, he's long looked at a company's entire capital structure, so this fund will capitalize on that work. He says some bonds would be good for the new bond fund but not good fits for Fairholme. It's also possible that he could buy bonds in companies where he already hit the ownership limits on the equity side. In addition, he notes some longtime clients wanted something for shorter-term needs though not as short as a money market. 

Berkowitz points out that he actually got his start in investing with bonds in London in the early 1980s when bonds paid mammoth yields. 

The fund comes with a minimum investment of $25,000. Berkowitz says that will help to keep expenses low. In addition, he doesn't want investors to use this fund as a money market substitute.

We wouldn't worry too much about this creating more work for Berkowitz given the reasons he cited. Other firms such as Dodge & Cox, Calamos, Third Avenue, and FPA blend stock and bond analysis.