Buffett's Strategy Lives in These Mutual Funds

NEW YORK (TheStreet) -- Warren Buffett has long talked about investing in companies with wide "moats." Such businesses dominate their markets for years because of advantages that competitors cannot duplicate.

Longtime Buffett favorites include such powerhouses as Coca-Cola(KO) and American Express(AXP), companies that can maintain fat profit margins because of their strong brands and unique products.

Recently, Morningstar analysts studied funds that invest in stocks with wide moats. They found that the funds proved relatively resilient during the rough markets of the past year. For many investors, top wide-moat funds could make intriguing holdings that might stabilize portfolios.

The fund study was based on Morningstar's stock-rating system, which evaluates the moats of 2,000 companies. Stocks are rated as having a wide moat, narrow moat or no moat. In order to be ranked in the wide-moat category, a stock must have high returns on capital that can be attributed to factors such as patents or huge economies of scale. Companies with no moats tend to have skimpy profits and tough competition.

For the study, researchers rated funds according to the number of wide-moat stocks they held. Of the 18 funds with the highest concentration of wide-moat stocks, 17 outperformed their categories by wide margins during the downturn of 2008.

One of the top performers in a dismal year was Jensen(JENSX), which takes stocks that only have long records for delivering high returns on equity. Portfolio holdings include such profit machines as Microsoft(MSFT) and Oracle(ORCL). During 2008, the fund lost 29% of its value, outdoing the average large-growth fund by 12 percentage points. Other wide-moat funds that outperformed were Dreyfus Core Equity(DLTSX) and Haverford Quality Growth(HAVGX).