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Funds That Buy Like Buffett 2016

Like the Oracle of Omaha, these funds prefer to buy and hold quality businesses.

Yes, it's that time of year again. On Saturday, April 30, Warren Buffett and Charlie Munger will convene the annual  Berkshire Hathaway (BRK.B) shareholder meeting in Omaha. That means it's also time for our annual look at mutual funds with the biggest holdings in the stocks held in Berkshire's investment portfolio. Buffett has become one of the most legendary and successful investors of all time by buying high-quality businesses at low prices and holding them for the long term, so it's always interesting to see which funds are interested in the same stocks he is.

As usual, Buffett and Munger will conduct business and answer questions on Saturday for tens of thousands of shareholders and fans (40,000 attended last year), and this year they'll also live-stream the whole affair for those who can't be there in person. One of the main topics of conversation will be Berkshire's 2015 results, which were somewhat mixed, in keeping with last year's crazy market. On the one hand, the stock performed significantly worse than the broader market, losing 12%, its fifth-worst annual showing in the past 50 years. On the other hand, Berkshire's per-share book value, Buffett's preferred metric for evaluating the health of its businesses, grew 6.4%, better than the 1.4% rise in the S&P 500 benchmark, following three-straight years in which Berkshire's book value grew slower than the S&P.

All this and plenty more is in Berkshire's shareholder letter, in which Buffett discusses the company's results while also holding forth on various other topics of interest. He notes that good results at subsidiary Burlington Northern Santa Fe were among the biggest drivers of Berkshire's strong 2015 performance, and discusses the firm's two most important acquisitions of the past year: the purchase of Precision Castparts for $37 billion (finalized in January 2016) and the merger between Kraft (co-owned by Berkshire and 3G Capital) and Heinz to form  Kraft Heinz (KHC). Most of the rest of the letter consists of Buffett's detailed explanations of the histories and business models of Berkshire's other major subsidiaries, interspersed with his thoughts on such issues as the future of American productivity (he's optimistic about it), the risks of a major terrorist attack, and climate change (which he doesn't see as a major threat to Berkshire's businesses, though he's concerned about it as a citizen).

As usual, this shareholder letter (also available in Berkshire's annual report) also lists the top stocks in Berkshire's investment portfolio as of Dec. 31, 2015. This year's list shows that the top 10 stock holdings didn't change much from a year ago. The top holding by market value is still longtime Buffett favorite  Wells Fargo (WFC), with another longtime favorite,  Coca-Cola (KO), still in second place.  IBM (IBM) moved up from fourth to third place after Berkshire increased its stake, while  American Express (AXP) moved from third to fourth. After that come  Procter & Gamble (PG),  Phillips 66 (PSX),  U.S. Bancorp (USB),  Wal-Mart (WMT), Moody's (MCO), and  Goldman Sachs (GS). Phillips 66 is the only newcomer to the top 10, replacing Munich Re.

Following the release of the past six Berkshire Hathaway annual reports, we looked at the funds with the highest percentage of their portfolio in Berkshire's top 10 stock holdings at the end of 2009, 2010, 2011, 20122013, and 2014. In honor of this weekend's shareholder meeting, we revisited the question and calculated which funds have the biggest weighting in Berkshire's latest top 10 holdings, as listed above. We left out sector funds such as Vanguard Consumer Staples Index (VCSAX) and Fidelity Select Consumer Staples (FDFAX), both of which would otherwise be in the top 10, as well as funds with under $100 million in assets and those with less than a five-year track record. With those constraints, the following table shows the 10 funds with the most Buffett-like taste in stocks, including each fund's five-year return and percentile rank in its Morningstar Category as of April 26, 2016:

This list includes four notable management teams that manage half of the 10 funds. Not surprisingly, these managers all follow Buffett in liking big, profitable companies with strong competitive advantages, but they differ in other ways.

First there's Donald Yacktman and his son Stephen Yacktman, who manage  AMG Yacktman Focused (YAFFX) and  AMG Yacktman (YACKX), the second and third funds on the list. They follow a Buffettesque strategy that focuses on profitable companies, usually with little debt, that are trading at a substantial discount to their estimate of the companies' intrinsic value. Each fund has three stocks from Buffett's top 10 among its top 15 holdings (Procter & Gamble, Coca-Cola, and U.S. Bancorp), and AMG Yacktman also has Wal-Mart and Wells Fargo among its top 25. Both funds have been outstanding long-term performers, and Donald Yacktman was a finalist for Morningstar Domestic-Stock Fund Manager of the Decade in 2010, though both have had a tougher time during the past five years, when their high-quality, valuation-conscious approach has largely been out of favor. AMG Yacktman Focused has a Morningstar Analyst Rating of Silver, while AMG Yacktman is rated Gold.

Next there's  AllianzGI NFJ Dividend Value (NFJEX), managed by Ben Fisher and seven comanagers at NFJ Investment Group in Dallas. As the fund's name implies, stocks in the portfolio must pay a dividend, but they also must be cheap according to the managers' strict valuation criteria, and preferably should have positive price and earnings momentum, as a way of avoiding value traps. Three of the Buffett stocks are among the fund's top six holdings (Wal-Mart, IBM, and Wells Fargo), and it also has a smaller position in Procter & Gamble. Like the Yacktman funds, this fund has had a tough time keeping up during much of the past five years, but it still has an excellent 15-year record, which helps it earn a Morningstar Analyst Rating of Silver.

Silver-rated  Bridgeway Blue Chip 35 Index is managed by John Montgomery and his team at Bridgeway. Unlike managers who use fundamentals and valuation to try to identify the most-attractive stocks, the Bridgeway team simply ranks the 150 largest U.S. stocks by market capitalization, then builds an equal-weighted portfolio of 35 stocks that's diversified by sector, holding no more than four stocks from any one industry and rebalancing occasionally to keep any position from getting too large or too small. Although none of Buffett's 10 biggest holdings are among this fund's top 10, three of them (Procter & Gamble, Wells Fargo, and Coca-Cola) are in its top 25, with IBM and Wal-Mart also in the portfolio. This fund's returns tend to track the large-blend category pretty closely most of the time, but it has held up better than its peers in tough markets where investors flee to safety, such as 2008 and 2011.

Finally, there's Silver-rated  BBH Core Select , comanaged by Tim Hartch and Michael Keller of Brown Brothers Harriman. Much like the other managers above, Hartch and Keller maintain a fairly concentrated portfolio (around 30 stocks) dominated by profitable blue chips trading below their estimated intrinsic value, and the fund has had a rough few years despite a strong long-term record. The similarity of their investing principles to Buffett's is illustrated by the fact that Berkshire Hathaway is the fund's biggest holding, with 6.7% of assets as of March 31, 2016. But U.S. Bancorp and Wells Fargo are also in the top five, and Wal-Mart is in the top 20.

Although most of these funds have strong long-term track records, seven of the 10 have trailed the large-blend category during the past five years. That's not too surprising, for the same reason it's not surprising that Berkshire Hathaway has lagged the broader market during the same period: The best performers during the past five years have been relatively risky stocks with a lot of debt, rather than the stable cash cows favored by Buffett. But it's worth noting that the two Yacktman funds are the only ones on this list to have beaten Berkshire Hathaway during the past 10 years, illustrating how tough it is to beat Buffett over the long term. That long-term strength illustrates why so many people pay attention to Buffett's portfolio, and why emulating his general approach has been a winner over time.

David Kathman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.