On Saturday, May 4, Omaha, Nebraska will host the event sometimes referred to as "Woodstock for Capitalists": the annual Berkshire Hathaway BRK.B shareholder meeting, led by chairman Warren Buffett and vice chairman Charlie Munger. (For those who can't make it in person, the meeting will be livestreamed.) That means it's time for our annual look at the mutual funds with the biggest stakes in the stocks held in Berkshire Hathaway's investment portfolio, as listed in Buffett's annual letter to shareholders and annual report. Morningstar's Susan Dziubinski discussed the letter when it came out in late February.
Berkshire’s investment portfolio used to be managed entirely by Buffett, but for the past few years some of it has been run independently by Todd Combs and Ted Wechsler, who each now manage more than $10 billion. Thus, a more accurate title for this article might be “Funds That Buy Like Buffett, Combs, and Wechsler,” but that’s not as snappy.
The portfolio’s top 10 holdings by market value as of Dec. 31, 2018 were Apple AAPL, Bank of America BAC, Wells Fargo WFC, Coca-Cola KO, American Express AXP, US Bancorp USB, JPMorgan Chase JPM, Bank of New York Mellon BK, Moody's MCO, and Delta Air Lines DAL. JPMorgan Chase and Bank of New York Mellon are the two newcomers to the top 10, replacing Phillips 66 PSX and Southwest Airlines LUV. Thus, seven of Berkshire’s top 10 stock holdings are now financials.
Following the release of the past nine Berkshire Hathaway annual reports, we looked at the funds with the highest percentage of their portfolio in Berkshire's top 10 stock holdings at the end of 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, and 2017. The table below shows funds with the biggest combined weightings in Berkshire's top 10 stock holdings at the end of 2018, as listed above. We left out sector funds such as banking and financial-services funds, which would otherwise dominate the top 10 because of the presence of so many banks on the list, and funds with under $1 billion in assets. With those constraints, the following table shows the 10 funds with the most Buffett-like taste in stocks, including each fund's five-year return and percentile rank in its category through March 31, 2019:
The top fund on this list, Davis NY Venture NYVTX, which has a Morningstar Analyst Rating of Bronze, is run by Chris Davis and Danton Goei of Davis Selected Advisors. Davis is a longtime Buffett fan whose value-investing approach often favors financial stocks, so it’s no surprise to see this fund here. The fund’s top holding as of Jan. 31, 2019, was Berkshire Hathaway, and Wells Fargo was the second largest, with JPMorgan Chase and Bank of New York Mellon also among the top 10. The fund struggled in 2018, losing 13% and ranking in the bottom decile of the large blend Morningstar Category, but it bounded back nicely in the first four months of 2019, ranking in the category’s top decile for the year to date as of late April. A similar pattern has been evident in the fund’s long-term performance: It often underperforms in the short term, but it has always come back eventually to put up good numbers.
The second fund on the list, Smead Value SMVLX, also has Berkshire Hathaway among its top 10 holdings, taking up almost 5% of the March 31, 2019, portfolio. (A year ago, when Smead Value topped this list, Berkshire was its top holding.) As with Davis and Goei, this fund’s managers (William Smead, Tony Scherrer, and Cole Smead) have an investment philosophy similar to Buffett’s, focusing on companies with strong competitive advantages, long histories of profitability, high free cash flows, and low price tags relative to their intrinsic value. In addition to Berkshire, the fund has American Express, JPMorgan Chase, and Bank of America among its top 10 holdings, with a combined 14.4% of assets, and it also has a substantial position in Wells Fargo.
Gordon Scott, who has managed Fidelity Export and Multinational FEXPX since 2014 and Fidelity Dividend Growth FDGFX since January 2018, is another big Buffett fan. In both of these funds, which he’s currently running as near-clones of each other, Berkshire Hathaway is the largest holding with just under 10% of assets as of the Feb. 28, 2019, portfolio. Scott’s approach to stock-picking is similar to Buffett’s, focusing on companies with high returns on invested capital, good free cash flow, and executives who are skilled allocators of capital. In addition to Berkshire, both funds have Bank of America, Apple, and JPMorgan Chase among their top 10 holdings, with smaller positions in Wells Fargo, US Bancorp, and Delta Air Lines.
Finally, there’s Dodge & Cox Stock DODGX, by far the largest fund on this list and the highest rated, with a Morningstar Analyst Rating of Gold. Unlike the other funds discussed above, this fund doesn’t actually hold Berkshire Hathaway in its most recent portfolio, but the committee that manages it has a Buffett-like approach to choosing stocks, emphasizing cheap stocks with good management, competitive advantages, and strong growth potential. Wells Fargo and Bank of America are the only “Buffett Top 10” stocks in this fund’s top 10 holdings as of March 31, 2019, but it also has substantial positions in JPMorgan Chase, American Express, and Bank of New York Mellon. The fund has also been a topnotch performer over the long term, illustrating the success that can come from skilled application of a strategy emphasizing quality and valuation.