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The Big Screen: The Buffett Way

In a muddled market, many fund managers are handing their shareholders' money to one of Wall Street's savviest and stodgiest stock pickers, Warren Buffett.

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Companies aren't earning as much as they used to, but their shares aren't cheap either. So, growth managers trolling for fast-growing shops and value managers hunting bargains are left wondering where they can invest their shareholders' money. Some members of each camp, which usually have precious few picks in common, are carrying big stakes in Berkshire Hathaway (BRK.B), the portfolio of businesses bought by Buffett.

Judging by his annual letter to shareholders filed last week, Buffett isn't expecting boffo gains from stocks over the next decade, but that kind of temperance is finding an audience these days. This week's Big Screen looks at funds with the biggest bets on Buffett, and we find a diverse audience, using data from Chicago research house Morningstar.

Value managers have often had a taste for Buffett's approach, given his heavy focus on cheap valuations and insurance stocks. But with the tech-laden Nasdaq Composite off more than 61% over the past two years, growth managers are paying more attention to valuations and sinking some money into the Oracle of Omaha's picks.




Owning The Oracle, If Not Oracle
Buffett is the Oracle of Omaha, and these funds like his style
Fund Percentage of Assets in Berkshire Hathaway 3-Year Annualized Return
(SEQUX) Sequoia 35% 3%
(OAKVX) Oak Value 9.8 4
(JORNX) Janus Orion 5.8 N/A
(RSCOX) RS Contrarian 5.3 11.1
(WVALX) Weitz Value 5.3 11.4
(FLEPX) Deutsche Flag Equity Partners 4.8 2.5
(JGVAX) Janus Global Value 4.7 N/A
(TGIGX) TCW Galileo Income + Growth 4.5 14.2
(IMLLX) iMillennium 3.4 N/A
(FIDAX) John Hancock Financial Industries 3.4 1.9
S&P 500 0 -2.3
Source: Morningstar. Returns through March 12.

There are a slew of familiar value funds here that have long been fans of Buffett's approach.

First and foremost there's the (SEQUX) Sequoia fund, which is closed to new investors and has more than a third of its assets sunk into Berkshire Hathaway. Longtime lead manager William Ruane, who's held the reins since the fund's 1970 launch, has traditionally been a Buffett fan. Like him, Ruane and co-manager Robert Goldfarb, focus on companies with simple business plans, visionary management and lasting competitive advantages. And like Buffett's portfolio, the fund has typically stayed ahead of the S&P 500, except for years such as 1999 when the growth style lorded over the market.

Other high-profile value funds on our list are the (OAKVX) Oak Value fund and the (WVALX) Weitz Value fund, with 10% and 5% of their assets pegged to Buffett's picks. It also makes sense to the see the (FIDAX) John Hancock Financial Services fund on this list, given the big role insurance stocks play in Buffett's portfolio.

If value managers are drawn to Buffett for his bargain-hunting approach, his returns are hardly a hindrance either. Berkshire Hathaway tops the S&P 500 over the past one, three and five years, according to Morningstar. Its 14.5% annualized gain over the past five years tops the index by more than 5 percentage points.

Those returns also illustrate why some growth managers are drawn to Berkshire Hathaway shares these days, too. Now that the pricey highflying stocks that growth managers rode to sparkling gains in 1999 have fizzled, some have grown receptive to tamer, cheaper fare, too.

Denver growth shop Janus is the largest institutional holder of Berkshire Hathaway's Class B shares, with nearly $1 billion invested in the shares at the end of last year according to lionshares.com, a Web site that tracks institutional stock ownership. Janus' firmwide stake in the stock rose from some 19,000 shares at the start of last year to more than 400,000 shares by Dec. 31.

Janus has two young funds on our list, the mid-cap growth (JORNX) Orion fund and the more price-conscious (JGVAX) Global Value fund, launched in June 2000 and 2001, respectively. The stock was each fund's biggest position at the end of October, their most recent portfolio reports.

There's even a tech fund on this list, the (IMLLX) iMillennium fund, which has some 3% of its money invested in Berkshire Hathaway shares. The position is ironic, given that Buffett has long eschewed tech companies as too expensive and tough to understand.

Just a few years ago, Buffett's low tech approach looked pretty stale, but his diverse fan club in the fund world shows that fund managers have come around to the idea that experience and valuations matter. Given the glut of funds focused on expensive tech stocks with fresh faces at the helm, we might do well to wrap our arms (and portfolios) around the concept, too.

Ian McDonald writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to imcdonald@thestreet.com, but he cannot give specific financial advice.

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