Mutual Funds
Get your Buffett fix
Plenty of mutual funds allow you to get a piece of the world's greatest investor.
August 8, 2002: 6:06 PM EDT
By Martine Costello, CNN/Money Staff Writer

NEW YORK (CNN/Money) - The rest of the investing world is tiptoeing back into stocks, but Warren Buffett is on a roll. He's shelled out hundreds of millions of dollars in recent weeks to invest in half-dead telecom and energy companies.

You're not brave enough -- or rich enough -- to follow in his footsteps, but you figure he must be onto something. After all, he's one of Wall Street's legends, a man who has beaten the S&P 500 by an average of 11.2 percentage points between 1965 and 2001.

Lucky for you, you won't have to fork over $69,500 (Tuesday's closing price) to buy one class A share of Berkshire Hathaway. You can either buy the B shares for $2,311 or try one of hundreds of mutual funds that have caught Buffett fever.

Funds that love the Oracle of Omaha

Buffett weaves his magic through Berkshire Hathaway, a diversified holding company based in Omaha, Neb., whose main focus is insurance.

The company's subsidiaries receive millions in insurance premiums every year, and Buffet invests it in a range of stocks and bonds. His strategy is simple -- buy cash-rich businesses that he can understand. He's also used his sizeable holdings to invest in a host of businesses, and recent acquisitions in the past two years include Shaw Industries, Manville Corp., Benjamin Moore Paint, and boot maker Justin Industries.

Berkshire Hathaway shares are down about 9.6 percent this year through Monday, well ahead of the rest of the market. The S&P 500, for example, is down 24 percent over that time.

Over the years, Buffett has managed to attract many disciples, investors who have followed his lead and bought such stocks as American Express, Coca-Cola and Gillette Co., all long-term holdings of Berkshire Hathaway. Many, too, buy Buffett's stock. In fact, several hundred funds invest in Berkshire Hathaway class A or class B shares, according to Morningstar. They range from large growth and financial funds to hybrid funds, which invest in stocks and bonds.

Funds with the biggest stake in Buffett include the $4.3 billion Sequoia fund, currently closed to new investors. (Funds reopen from time to time -- and if you already are an investor you can keep buying shares).

Sequoia has about 35 percent of its assets in the pricey A shares. Other top holdings include Fifth Third Bankcorp, a commercial and retail bank, and TJX Cos., operator of discount retalers such as T.J. Maxx and Marshall's, Morningstar said. The fund has a 10-year annualized return of 16.5 percent, compared with 24 percent for Berkshire Hathaway in the same time, according to Morningstar's Dan McNeela.

Sequoia managers declined comment, but in the May 1 prospectus they said higher insurance rates following the Sept. 11 terrorist attacks should improve underwriting profitability for Berkshire Hathaway in 2002. Berkshire's stock rose 6.5 percent in 2001, even as the company's earnings dropped sharply because of losses related to the attacks, the managers wrote.

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Another big holder of Berkshire Hathaway is The Fairholme Fund, a mid-cap blend with about 25 percent in the B shares. Manager Bruce Berkowitz said he's not out to shadow Buffett, but he wants to invest in quality companies with great leaders at the helm.

Still, in addition to the Berkshire Hathaway shares, he invests in other Buffett favorites, such as White Mountain Insurance Group and American Express. The fund, tiny with $40 million in assets, earned 46.5 percent in 2000 and 6.2 percent last year.

"There's only one Warren Buffett," Berkowitz said. "He's made us a tremendous amount of money over the years."

Berkowitz said he is pleased with Buffett's latest buying spree. Most recently, Berkshire Hathaway and Lehman Brothers Holdings Inc. gave troubled energy company Williams Cos. a $900 million loan. The collateral: Most of Williams' oil and gas interests at Barrett Resources, which Williams acquired last year in a deal valued at about $2.6 billion. "The natural gas pipelines are extremely valuable," Berkowitz said.

And last month, Buffett invested $100 million lin struggling fiber-optic cable company Level 3 Communications Inc. (Click here to read more about What Buffett is buying lately.)

Berkowitz isn't scared off by Buffett's $100 million foray into battered telecom -- "that's a bar tip for him." And, telecom won't be down and out forever. The industry spent millions building technology that's now valued at 10 cents on the dollar.

"Warren Buffett has bought an amazing amount of assets in the last couple of years and he still has a huge pile of cash," Berkowitz said.

Even Janus Funds, which loaded up the type of technology stocks in the 1990s that Buffett wouldn't touch with a ten-foot poll, are converts. For example, Janus Orion, a mid-cap growth fund, has 5 percent of assets in the B shares, while Janus Global Value, a world stock fund, has 4 percent, Morningstar said.

Janus Orion manager Ron Sachs said his job is to find the fastest-growing stocks he can, whether they are technology or insurers or health-care providers. Orion, which launched in mid-2000, is down 31 percent this year, while Global Value, another newcomer, is down 14 percent in the same time. (For more on Janus Orion and the blurred line between traditional growth and value, click here.)

"The problems with technology have forced Janus to look in different areas for growth," Morningstar's McNeela said.

But not every fund wins with a big Berkshire Hathaway stake. Janus Orion, for example, has been hit hard by poor performers such as Administaff, a provider of personnel systems, and utility AES, both down about 88 percent this year. And Oak Value, a mid-cap blend with 10 percent in the B shares -- has stumbled this year, down about 27 percent. The problem? A concentrated portfolio and big hits from cable operators Charter Communications and Comcast, McNeela said.

As far as Buffett's advancing age (the Oracle is 72), Berkowitz acknowledged it's a valid concern. Nobody can replace Buffett. At the same time, Berkshire Hathaway is loaded with talented executives, and it's likely two people would take on Buffett's duties. On the investing side, a likely candidate is Lou Simpson, a CEO of Geico capital operations; while on the operations side it could be Richard Santulli, chief executive at Executive Jet, Ajit Jain, president of Berkshire Hathaway Group, or Tony Nicely, CEO of insurance operations at Geico.

"Would it be nice if Mr. Buffett were 20 years younger? Yes. Would there be a significant amount more money going into the stock if he were younger? Yes." Berkowitz said. "The company clearly will not be as good without him, but it will still be a very good company."  Top of page

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