With Berkshire Hathaway’s (BRK.B) – Get Berkshire Hathaway Inc. Class B Report annual shareholders meeting coming up Saturday, Morningstar has put together its annual list of “funds that buy like [Warren] Buffett,” Berkshire’s chief executive.
Morningstar, an investment research firm, looked at open-end mutual funds with at least $1 billion in assets and several other filters.
The chosen funds have the largest combined weightings in the top 15 stocks, by market value, held by Berkshire as of Dec. 31.
The top five Buffett stocks in order of market-cap are Apple (AAPL) – Get Apple Inc. Report, Bank of America (BAC) – Get Bank of America Corp Report, American Express (AXP) – Get American Express Company Report, Coca-Cola (KO) – Get Coca-Cola Company Report and Moody’s (MCO) – Get Moody’s Corporation Report.
American Century Funds
The funds are run by the same managers, “whose Buffett-like approach to picking growth stocks focuses on companies with histories of high profits, and competitive advantages that help maintain those profits over time,” writes David Kathman, senior manager research analyst for Morningstar.
“These funds’ presence atop this list is due to one stock: Apple, a Buffett favorite that is far and away both funds’ largest holding, taking up around 15% of each portfolio’s assets.”
Both funds have registered “pretty good” good returns in recent years, Kathman said. But Morningstar rates each of them only as neutral, “because of portfolio constraints that make it hard to stand out in the crowded large-[cap] growth space,” Kathman said.
“[Co-manager Chris Davis] is a longtime Buffett fan whose value-investing approach often favors big financial stocks and other blue chips that Buffett likes,” Kathman said.
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Berkshire Hathaway represented the fund’s top holding as of Dec. 31, with Buffett stocks Bank of New York Mellon (BK) – Get Bank of New York Mellon Corporation Report and U.S. Bancorp (USB) – Get U.S. Bancorp Report among the top 10.
The fund’s positions in some poor-performing non-Buffett stocks have depressed returns in recent years.
Still, Morningstar gives the fund a bronze rating (third after gold and silver), “thanks to the managers’ bold strategy and talent for picking good businesses,” Kathman said.
JPMorgan Large Cap Growth
Apple was the fund’s top holding as of Feb. 28.
The managers’ strategy is “similar to the two American Century funds and many others in the large-[cap] growth category, with an emphasis on companies having solid growth prospects and competitive advantages,” Kathman said.
“It’s not a particularly distinctive approach, but strong stock-picking … has helped the fund achieve top-decile returns in the category over the past 15 years.”
Apple was the second biggest holding in the fund as of Feb. 28.
The manager Chris Lin used to run technology sector funds, “so it’s no surprise that tech has a heavy presence here,” Kathman said.
“Lin’s approach to finding growth stocks is Buffett-like only in the very broadest sense. He is focused on finding competitively advantaged firms that have pricing power but don’t require a lot of capital investment.”