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Will Railroads Keep These Funds on Track?

Warren Buffett and a diverse group of funds like the industry's prospects.

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Warren Buffett's recently released  Berkshire Hathaway (BRK.B) annual shareholder letter prominently featured Berkshire's purchase of Burlington Northern Santa Fe as one of the highlights of 2010. Buffett said the purchase is working out "even better than I expected," and explained why he and vice chairman Charlie Munger are enthusiastic about BNSF's future. Railroads are much more fuel-efficient than trucking, giving them a big cost advantage, especially when fuel prices are rising. Buffett presented the purchase of BNSF as a bet on the long-term economic growth of the United States, about which he's more optimistic than many right now.

It's no longer possible to invest directly in Burlington Northern Santa Fe now that Berkshire owns it, but other railroad stocks have done pretty well during the last year as the economy has started to mend. The average railroad stock has handily beaten the S&P 500 Index over the past year, with such big names as  Union Pacific (UNP),  CSX (CSX), and  Canadian National Railway (CNI) gaining more than 30%. Results have been mixed in the past few months, but short-term volatility is to be expected in stocks as cyclical as these.

To get an idea which mutual fund managers share Buffett's optimistic view of railroads, we looked at the funds with the highest percentage of their portfolio in railroad stocks. Topping the list are a couple of specialty funds, Fidelity Select Transportation (FSRFX) and Rydex Transportation (RYPIX), with 31% and 28%, respectively, in railroad stocks. Several global infrastructure funds, such as Lazard Global Listed Infrastructure (GLIFX), are also high up on the list. We eliminated these in order to focus on diversified funds, and also left out funds with less than $100 million in assets. Within those limitations, the following table shows the 10 funds with the highest percentage of railroad stocks, including each fund's size and its percentile ranking in its category for the year to date and the past year (as of March 10).

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David Kathman does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.