11/5/2012 8:15 PM ET|
Fund managers’ goal: Mimic Buffett
A long line of mutual fund managers have sought to emulate the Oracle of Omaha, one of the most successful investors of modern times.
Is it possible to copy Warren Buffett's investment strategy and package it in a mutual fund?
The folks at AQR Capital Management, a firm that runs 16 mutual funds, recently published a paper saying they had created a systematic process that picks stocks like Buffett. The paper says that the process outperformed the returns of Buffett's Berkshire Hathaway (BRK.B) (with the benefit of hindsight) from 1976 to 2011.The Greenwich, Conn., firm declined to comment on whether it plans to roll out a mutual fund based on its Buffett simulator.
In Britain, meanwhile, an investment company has created a fund that it says follows Buffett's investing principles. The year-old fund's manager, Keith Ashworth-Lord, is trying to figure Buffett out. "I'm the apprentice and he's the sorcerer," Ashworth-Lord says.
The actively managed fund, ConBrio Sanford Deland UK Buffettology, from Sanford DeLand Asset Management, scours the U.K. market for the sorts of value stocks it thinks would excite Buffett. Recent buys include Domino's Pizza Group (DPUKF), a U.K. company that operates Domino's (DPZ) outlets in England and some European countries, and liquor company Diageo (DEO).
It's one of a long line of funds that have purported to emulate the Berkshire Hathaway founder, who is widely considered one of the best investors in modern times, and who didn't return a request for comment.
Robert G. Hagstrom, the author of several books on Buffett, in 1994 launched a fund dedicated to investing like him. Legg Mason (LM) bought the operation in 1998. The fund, now called Legg Mason Capital Management Global Growth Trust (LMGTX), trailed both its peer funds and the Standard & Poor's 500 Index ($INX) in recent years. Earlier this year, the company ditched the fund's explicitly Buffett-like investment approach and Hagstrom stepped down as the fund's manager.
A Legg Mason spokesman says the company doesn't comment on "changes to portfolio construction." Hagstrom also declined to comment.
Some say many of the crucial drivers of Buffett's success are impossible to replicate in a fund.
Samuel Lee, an exchange-traded-fund analyst at Morningstar (MORN), says it's hard for a fund to imitate Buffett's ways because investors may reject a fund that holds staid stocks even in upswings. And unlike Berkshire Hathaway, he says, a fund won't have income from insurance companies like Geico to provide leverage for investments, possibly magnifying returns.
Lee says the no-frills Vanguard Dividend Appreciation ETF (VIG) -- which also has mutual-fund shares -- comes closest to a Buffett-like strategy. It perennially has some of the same top holdings as Berkshire Hathaway and is similarly focused on companies with a long history of raising dividends, Lee says.
While the UK Buffettology fund remains tiny, with about £2.5 million ($4.1 million) invested, it has returned 29% this year through Oct. 31, compared with 6.1% for its benchmark, the FTSE All Share Index.
The fund manager, Ashworth-Lord, says he follows Buffett closely in the news and bases himself far from the heart of the investing crowd, just as Buffett does. "I work out of Manchester, not in London. It's like how he works in Omaha, (Neb.), not on Wall Street. You're not bombarded by information," he says. He has an Internet news alert set for "Warren Buffett," and he reads the Omaha World-Herald on the Web to try to keep up with Buffett.
Ashworth-Lord licensed the "Buffettology" term from Mary Buffett, who was once married to one of Warren Buffett's sons, and from her business partner David Clark. Though Mary Buffett and the Berkshire founder no longer speak, she has co-written books on his investing style.
Mary Buffett says it's a great time for value investing in the U.K., where anxieties over the European Union's troubles have driven down prices of solid stocks. Still, she concedes, "there's nothing like a Berkshire Hathaway -- which is almost like a fund itself, it's so large."
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VIDEO ON MSN MONEY
"with the benefit of hindsight"
With that benefit, I could come up with a trading strategy that would have performed 10,000 times better than Buffett, whether he was involved in the stocks or not.
Buffett and his flock of sheep continue the "Oracle" montra even though it is long gone. Ten year return is a very mediocure 7.65%. If you were unlucky enough to have invested with the "Oracle" in Dec of 2007, you have watched your stock go down from 148,900 to todays 130,629. Wow, what a great investor. He's so full of himself he makes me sick.
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