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Seven Buffett-Inspired Funds We Believe In

These funds closely follow the Oracle of Omaha's tenets.

Michael Breen, 05/05/2009

Considering his tremendous record, it's surprising more fund managers haven't patterned themselves after Warren Buffett. Then again, some fund firms seem more concerned with gathering near-term assets than delivering superior returns to shareholders over the long haul. Not so at the funds below. They don't mimic Buffett's moves, since he now mostly buys control of entire companies and does special financing deals. But they're true to his investment principles and share his long-term commitment to shareholders.

Sequoia SEQUX
This is the granddaddy of all Buffett-inspired funds. Bill Ruane and Richard Cunniff started Sequoia in 1970, mostly as a vehicle to absorb investors sent over by Buffett himself, who was folding his investment partnership. Current manager Bob Goldfarb has been on board for 35 years and has run the fund since 1998. Sequoia has been a bastion of consistency in an industry plagued by flavor-of-the-month fund launches. It has never wavered from the Graham-inspired underpinnings it shares with Buffett. The fund reopened in early 2008 after being closed for 26 years. Sequoia still has the right stuff.

Fairholme FAIRX
Talk about being greedy while others are being fearful. In late 2008 manager Bruce Berkowitz and his team remade this portfolio, loading up on pharmaceutical and defense stocks that had cratered on speculation about a new administration's policies. This fund got walloped in 2008, losing 29.7%. But that was a lot less than the S&P 500 and nearly all its rivals. It's bounced back recently, and its record since its late 1999 inception remains great. This fund makes huge bets on individual names, so it will inevitably have a big blowup. In a recent article, my colleague Chris Davis wisely cautioned investors to temper their expectations. But with assets at less than $6 billion and inflows slowed by the bear market, we think stock-picking will remain the driving force behind this fund's performance, which is great news for investors.

This fund is rock solid. Advisor Fenimore Asset Management has a record of success reaching back to 1974. The consistent application of a straightforward, Buffett-esque strategy gives the shop its edge. Managers Thomas Putnam and John Fox stay in their circle of competence, buying high-quality firms with competitive advantages. Like Buffett, their favorite holding period is forever. Brown & Brown BRO, Berkshire Hathaway BRK.A, and White Mountains Insurance WTM have been top holdings for more than a decade, and the portfolio's annual turnover rate rarely tops the single digits. Impressively, the fund lost much less than its rivals and the S&P 500 in 2008, despite having the bulk of its assets in financials, the year's worst-performing sector. This team can pick stocks.

Weitz Partners Value WPVLX
Like Buffett, fellow Omaha resident Wally Weitz looks at market fluctuations as his friend. He's not shy about piling into troubled areas if he sees long-term value. He's made a few mistakes lately, most notably buying into American International Group AIG in 2008, but he's been right much more often than not over time. This fund has returned an average of 11.4% annually in the quarter century since it launched, crushing the overall market. We like this fund.

Oak Value OAKVX
As my colleague Gregg Wolper recently pointed out, this fund deserves more attention. Managers David Carr and Larry Coats aren't cigar-butt investors. Like Buffett, they buy great companies at fair prices. Berkshire Hathaway is the fund's current top holding. But their circle of competence differs from Buffett's, so tech bellwethers Oracle ORCL and Microsoft MSFT also nestle in among the portfolio's top-10 names. The fund's long-term record is solid. Assets have shrunk to well under $100 million, so the fund is certainly nimble. But the eroded asset base has caused expenses to rise to levels we're not fond of. However, it wouldn't take much of a rebound in assets to reverse that trend. This is one to watch.

Manager Luther King doesn't consider himself a Buffettologist. He just thinks firms with solid market positions, clean finances, strong cash flows, and good returns on capital are the only way to go. Similarities between him and Buffett are coincidental rather than by design. Still, this fund has a lot to offer. It has a great record of its own, and King has had tremendous long-term success using the same strategy in separate accounts, which account for most of his advisory firm's $5.5 billion in assets. This fund is tiny, but since it leverages resources from the firm's separate accounts, King keeps its expense ratio at just 0.80%. This move says a lot about King's commitment to shareholders. More people should know about this steady fund.

Ariel Focus ARFFX
This young fund has been just average since its mid-2005 inception, but we think it will turn out fine over the long haul. Unlike Ariel's other Buffett-esque offerings, it focuses on large-cap stocks. That's because managers Charles Bobrinskoy and Tim Fidler think more-liquid stocks best suit the fund's concentrated format. The team targets firms with sustainable competitive advantages trading at discounts to their estimates of intrinsic value. Accenture ACN is a recent favorite. Bobrinskoy says the consultant is expanding a strong market position at the expense of weaker rivals. This portfolio looks well positioned. It's full of cheap firms with strong cash flows and solid balance sheets.

Michael Breen is a senior analyst with Morningstar.

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