Bruce Berkowitz was named mutual-fund manager of the decade in 2010. Today, his fund has lost 89% of its assets from a 2011 peak and he is staking a comeback partly on one of America’s most beaten-down companies: Sears Holdings Corp.

Mr. Berkowitz’s flagship Fairholme Fund has lost 12.9% so far this year, while the S&P 500 is up about 9%. Over five years, his Fairholme Fund returned 7.6% vs. 15.1% for the S&P. At $2.2 billion in assets, the fund is just a fraction of the $20 billion in assets it held in 2011.

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