This Fund Heeds the Oracle of Omaha
Many mutual fund managers idolize Warren Buffett. Robert Hagstrom, manager of Legg Mason Growth fund, authored a best-selling book on Buffett's investing style. Whitney Tilson, manager of the Tilson Focus fund, recommends that shareholders read Buffett speeches and often quotes him in his missives to fund shareholders. Buffett's Berkshire Hathaway is the top holding of the Fairholme fund.
But Douglas Davenport takes the cake when it comes to Buffett worship. Davenport runs the Wisdom fund, which aims to recreate the investment portfolio of Berkshire Hathaway. He keeps close tabs on Buffett's moves and reflects them in Wisdom fund's portfolio as soon as he learns of them.
Berkshire owns a diverse group of businesses in their entirety. Insurance forms the heart of the collection. Berkshire owns auto insurer Geico and reinsurers General Re and Berkshire Hathaway Reinsurance. Among Berkshire's other holdings are the International Dairy Queen fast-food chain, clothing maker Fruit of the Loom, jeweler Helzberg Diamonds, the Buffalo News and Clayton Homes. Berkshire also owns significant stakes of some publicly traded companies, including American Express (symbol AXP), Coca-Cola (KO), Wal-Mart (WMT) and Wells Fargo (WFC).
One reason to try to recreate the Berkshire portfolio is that its stock is so costly. Berkshire's Class A shares (BRK.A) closed November 24 at $107,610, while the B shares (BRK.B), which lack voting rights, closed at $3,587.50.
Like a bootleg DVD, Davenport's copy of the Berkshire portfolio is far from perfect. That's mainly because Davenport must use substitutes for Berkshire's wholly owned subsidiaries. So he owns shares of auto insurer Progressive (PGR) as a proxy for Geico, Burger King (BKC) as a stand-in for Dairy Queen and so on.
Davenport began his career as a money manager in 1990, focusing on undervalued stocks of large companies. When he launched Wisdom fund in 1999, he decided he would try to emulate Buffett because of the soundness of his strategy, "which is to make sure you buy great companies with clean balance sheets and at prices low enough to establish a great margin of safety."
In recent years at least, it's no contest between Buffett and Davenport. Over the past five years through November 24, the fund returned an annualized 7% while Berkshire's A shares gained 12% annualized. Wisdom fund comes in a variety of classes. If you want to avoid sales charges, you'll have to pony up $25,000 for the fund's institutional shares (WSDIX). Its annual expense ratio, at 1.28%, is slightly below average.
The minimum investment is just $2,500 for the other share classes, but they are particularly unattractive because of their high fees. On the other hand, the wise move may be to avoid Wisdom altogether and scoop up some Berkshire B shares.