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3 Funds That Buy Like Buffett

David Kathman, CFA, Ph.D.
Alec Lucas, Ph.D.

Christine Benz: Hi, I'm Christine Benz for Morningstar.com. As Berkshire Hathaway has grown in size, some analysts, including Morningstar's Gregg Warren, have raised concerns that the firm may have trouble growing as rapidly as it did in the past. While Warren Buffett is the world's greatest living investor, it's possible to find mutual funds that employ a similar patient, quality-conscious strategy and do so in a more nimble package. We reached out to our analyst team to identify three such funds.

Alec Lucas: FMI Large Cap's long-time manager, Patrick English, helped install the firm's now committee-based, value-oriented approach that has produced fantastic results over full market cycles. Their approach is very value-oriented in that they look for a meaningful discount to a company's intrinsic value. Their top holding is Berkshire Hathaway, but what makes them like Warren Buffett is not that they hold this company, but it is in how they invest in terms of looking for good businesses, trading at reasonable if not great prices. They are more prone than Buffett, perhaps, to take advantage of Mr. Market's 1:00 highs and lows and are willing to sell based on valuation. They also pay heed to Buffett's dictum that size is an anchor to investment performance. They pay close attention to the fund's capacity and are willing to close it to new investors to protect current shareholders. It's currently open, and it is worth investors' notice.

David Kathman: BBH Core Select is a Silver-rated fund that has a lot of Buffett-esque features. Managers Tim Harch and Michael Keller are big fans of Warren Buffett. In fact, Berkshire Hathaway is the fund's top holding as of Jan. 31 with about 7.5% of assets. On the whole, the managers pick stocks in a way very much like Warren Buffett. They prefer to own companies that dominate their market niches and which generate a lot of cash flow without having too much debt on their balance sheets. They also prefer to own stocks that are trading at least 25% below their estimated intrinsic value, which the managers estimate using a discounted cash flow model based on future cash flows. On the whole, they look for high high-quality companies trading at a discount, very much like Warren Buffett, and this fund is a great option for value investors.

Alec Lucas: Akre Focus' manager, Chuck Akre, and comanagers Tom Saberhagen and John Neff run a focused portfolio of few stocks. One of them is Berkshire Hathaway, but what makes them like Warren Buffett is not that they hold his company but it's rather in how they invest. They like to liken their process to a three-legged stool in terms of the kinds of companies they look for. The first leg of that stool is the business model that produces high free cash flow. The second leg is shareholder-oriented management. And the third leg is the ability to invest that high free cash flow in areas that will produce attractive rates of return. They have built a strong track record in managing money this way. They hold on to their companies for the long haul and it is worth a look.