How 186 funds are even better than Warren Buffett

For decades, Berkshire Hathaway, the conglomerate led by “Sage of Omaha” Warren Buffett, has been the benchmark for successful investing. Buffett, the seventh richest person in the world, is courted by politicians, economists and, most importantly, investors of all skill levels for his (often witty) pearls of wisdom.

But what is it ? It seems the Sage may not be the undisputed king of investing that many of us believed. In fact, wealth manager AJ Bell has found 186 publicly traded investment funds and trusts of various types and sizes that have earned more than Buffett Berkshire Hathaway’s investment firm since 2001.

Five fund managers (including an investor duo) who have been in charge of their respective funds throughout this period have outperformed Buffett.

What is Warren Buffett’s secret?

Since 1964, when Buffett became the majority shareholder, Berkshire Hathaway has generated an extraordinary return of 2,810,526% to investors.

This means that £ 100 invested at the time would now be worth £ 5,724,854 (taking into account the decline in the value of the pound). By comparison, £ 100 invested in an index of the 500 largest US companies would now be worth £ 47,976.

Buffett’s strategy was remarkably simple. He buys good businesses at a fair price and keeps them for the long haul.

Rob Morgan, analyst at the Charles Stanley investment platform, says, “Owning big companies forever” is the overall philosophy. This tends to be very useful for investors.

Economic historian John Butler adds that Buffett’s investing style is “very unsexy,” but he’s the only one that has proven successful through multiple business cycles.

“Famous, Buffett has always sought relatively safe industries with stable revenues that typically have high dividend yields that take leadership positions in generally mature and established industries,” said Butler.

While consistent, Buffett has not been afraid to adapt his investing style over the years if necessary.

In his early days, he invested in companies that were on the verge of collapse and sold them when their stock prices improved. However, he is now also investing in companies which may not seem cheap, but which may still have a long way to go.

Laith Khalaf, analyst at AJ Bell, says: “He now combines growth and value in his approach, which he sees as two sides of the same coin. For example, he recently took a big position in Apple, which is hardly a value stock. ‘

Investment styles that beat Buffett

Most of the 186 funds and trusts that have surpassed Buffett in 20 years invest in small businesses, emerging markets or specialist themes. You would expect these to produce high returns because they are risky investments and investors need to be paid to try their luck. By comparison, Buffett’s genius lies in how he has generated consistently high returns while investing in strong companies that are unlikely to be highly volatile. No investment is ever risk free, but the types of blue chip companies Buffett invests in are likely to operate in all kinds of environments.

The comparison to funds and investment trusts is not perfect as Berkshire Hathaway does not quite fit into either category.

Jason Hollands, director of wealth manager Tilney Smith & Williamson, explains: “While Warren Buffett is revered as the world’s most famous investor, Berkshire Hathaway is a multinational conglomerate with a wide range of subsidiaries in various industries.

“These range from the battery company Duracell to the International Dairy Queen restaurant group and the US freight railroad BNSF. It also owns a number of insurance companies and holds significant minority stakes in a portfolio of companies, such as Bank of America, American Express and Coca-Cola. ‘

The managers who eclipsed Buffett

Of the funds and trusts that have outperformed Buffett, four have managers who have been in the driver’s seat for the entire 20-year period, so it can be said that they faced Buffett and came out on top.

The most successful is the Scottish Mortgage Trust, which James Anderson has run since 2000 and has built a reputation for selecting the most promising growth companies.

Tech stocks such as Tesla, Amazon and Alibaba have particularly rewarded the investments. Anderson will be leaving Scottish Mortgage next year, but his fellow managers, Tom Slater and Lawrence Burns, will continue with the same investment philosophy. An investment of £ 1,000 in 2001 would now be worth £ 24,688.

Next in line are the Lindsell Train Investment Trust and Finsbury Growth & Income Trust, which are led by Nick Train and Michael Lindsell.

The duo’s success is based on investing in sustainable and cash-generating businesses. “Their philosophy is much closer to Buffett’s,” Morgan says.

“It’s about owning big companies forever. They have a lot of consumer staples that are big companies, such as Kraft Foods, Heineken, and Mondelez. The idea with pillars like these is that nobody stops buying beer and candy during a recession. ‘

A £ 1,000 investment in Lindsell Train Investment Trust and Finsbury Growth & Income in 2001 would now be worth £ 18,131 and £ 8,519 respectively.

Alexander Darwall has been leading Devon Equity Management European Opportunities since 2000 and has turned £ 1,000 into £ 10,693 over the past 20 years. It invests in companies in the UK and Europe with strong balance sheets and low levels of debt, and which have the capacity to thrive in all economic conditions.

Max Ward has led Independent Investment Trust since 2000 and invests where he sees opportunities in any industry or country. He ran the Scottish Mortgage Investment Trust from 1989 to 2000, before James Anderson took over. Ward has been a long-term supporter of UK homebuilding stocks, but has embraced the technology as well. An investment of £ 1,000 in 2001 would now be worth £ 8,286.

Khalaf adds that just because these fund managers have performed well over a long period of time does not mean they are guaranteed to continue to do so. However, he thinks they should be credited with having excellent skills.

“You have managers here who have been doing very well for 20 years,” he says. “Inevitably they will be lucky, but it takes a very fanatic fan of passive investing to suggest that after two decades of outperforming they have not demonstrated remarkable skill.”

THE WINNERS AND HOW THEY DID IT

Scottish Mortgage, led by James Anderson, has produced the highest yield over 20 years and is consistently among the top ten best performing UK funds.

Part of the fund’s strategy is similar to Buffett’s – they also strive to buy and hold.

Director of Corporate Strategy Catharine Flood says, “It’s not complicated. We buy things that have a good chance of becoming the leader in their industry. It might not be glamorous, but it is what we do. We are patient, long-term owners of growing businesses.

Achievement: James Anderson of Scottish Mortgage

However, the types of companies that Scottish Mortgage invests in are different from the Berkshire Hathaway portfolio. Scottish Mortgage looks for growth companies that disrupt the markets, rather than large, stable companies.

The disruptors have been into tech, but fund managers think they’re now more and more into biology and they are adjusting the portfolio accordingly.

“The 20th century was the century of the computer,” says Flood. “The 21st century seems to be the century of biology. Our portfolio changed shape as we looked at new developments. ‘ Genetic sequencing giant Illumina is the trust’s largest stake and it has major investments in Moderna as well as other biotech companies.

Scottish Mortgage is also known for its large and long-term holdings in tech stocks such as Amazon and Tesla, both of which remain in the portfolio although they may not have the incredible growth potential over the course of the year. next decade that they had when they were created. purchased.

Energy, transport and the materials they require are also appreciated by managers. “It is likely that there will be a shortage of nickel by 2023, a shortage of lithium by 2028, and a shortage of cobalt by 2025,” Flood says.

“As long-term investors you want to see who is going to solve the problems ahead and how good their management teams are.”