4 Great Mutual Funds That Emulate Warren Buffett

If you fancy Warren Buffett's investment style but prefer investing in funds, you can choose among several that don't levy sales charges and are run by capable managers who are keen disciples of the master.

BBH Core Select (symbol BBTEX)

One is BBH Core Select, steered by three co-managers -- Richard Witmer, Timothy Hartch and Michael Keller -- who are Buffett buffs. Staring down at them in their office in New York City is a plaque with this exhortation from the Oracle of Omaha: "Your goal as an investor should be to purchase, at a rational price, a part interest in an easily understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now."

Hartch, who began managing the fund with Witmer in October 2005 (Keller joined in June 2008), says that about 150 companies, domestic and foreign, meet the team's qualitative criteria. But because the managers hold only 30 to 40 stocks, they are sticklers for price. They'll buy only if a stock sells for at least 25% less than their estimate of the underlying company's intrinsic, or true, value.

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For instance, the managers long had Visa, the credit card giant, on their radar screen. When the stock fell in late 2010 due to government efforts to regulate debit-transaction fees, BBH pounced. "Visa is a company that we admired for a long time," says Keller. "We finally got a chance to buy it when the stock was under stress."

Buying resilient, high-quality businesses when they're on sale helps to mitigate risk. BBH held up better than most funds in the 2007-09 bear market, surrendering 14 percentage points less than Standard & Poor's 500-stock index lost. And the fund has been almost 20% less volatile than the index.

Weitz Partners III Opportunity Fund (WPOPX)

Wally Weitz hails from Buffett's hometown of Omaha and has known Buffett since the 1970s. Weitz, who has held shares of Berkshire Hathaway continuously since 1976, has built a successful family of mutual funds based extensively on Buffett's investing principles. He has attended dozens of Berkshire annual meetings and reads every word of the Buffett-penned annual reports multiple times.

Originally set up as a limited partnership in 1983, Weitz Partners III Opportunity Fund converted to a mutual fund in December 2005. Over the past five years, Partners returned an annualized 6.3%, an average of four percentage points better than Standard & Poor's 500-stock index. During the past year, the fund returned a dazzling 24.7%, ten points ahead of the index (all returns are through March 10).

When he buys a stock, Weitz says, he acts as if he were buying a whole business. In doing so, he tries to determine how much cash flow a company can generate over the next 20 to 30 years. "We think like an owner willing to wait years for the rest of the world to catch on," he says.

Weitz runs a fairly concentrated portfolio -- the top ten positions accounted for 44% of assets at last report -- and can sell stocks or indexes short (a bet on lower prices) to hedge his portfolio. Large positions include Texas Instruments and a bunch of companies linked to John Malone's Liberty Media. The fund's annual fee is 1.23%.

Ariel Focus (ARFFX)

Another keen student of Buffett's is Tim Fidler, co-manager of Ariel Focus. Fidler also makes the pilgrimage to Berkshire Hathaway's annual meetings in Omaha. One stock in his portfolio that Fidler thinks meets Buffett's criteria is JPMorgan Chase. Fidler calls the banking giant, which sells for only eight times estimated 2012 earnings, "best in class" in most of its business lines. Ariel has returned 1.6% annualized over the past five years, half a point better than the average for large-company value funds. Annual expenses are 1.25%.

Sequoia Fund (SEQUX)

Bill Ruane was a pal of Buffett's, and the two learned the craft of investing at the feet of the godfather of value investing, Benjamin Graham. Ruane co-founded Sequoia Fund (SEQUX) and compiled an outstanding record over decades, with an outsize chunk of assets devoted to Berkshire Hathaway. Ruane passed away in 2005, but Sequoia is still ably managed by Robert Goldfarb and David Poppe, who adhere to the same value-investing principles. At last word, Sequoia allocated 12% of its assets to Berkshire stock. The fund, which has a 1.01% annual fee, returned 5.9% annualized over the past ten years, an average of three points better than the S&P 500.

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