Morningstar's Christine Benz highlights mutual funds, that could round out a Berkshire-like strategy.
Tags:Three Ways to Complement a Buffett Like Portfolio,berkshire investment strategy,berkshire like portfolio,buffet like portfolio,buffett heavy portfolio,business tips,complementing buffet like portfolio,morningstar,warren buffett investment style,mutual funds
Grab video code:
Three Ways to Complement a Buffett Like Portfolio
Jason Stipp: I'm Jason Stipp from Morningstar. The Annual Berkshire Shareholders Meeting is happening this weekend and Buffett devotees and Berkshire shareholders from all over the world will be convening in Nebraska.
It got us to thinking, what does it mean to have a portfolio like Buffett's? And if you were just investing in Berkshire, what kind of portfolio would you have? Here with me to discuss is Morningstar's Christine Benz. She is Director of Personal Finance and she has some ideas on how you might round out a Buffett-like portfolio. Thanks for joining me, Christine.
Christine Benz: Jason, great to be here.
Jason Stipp: So, the first question for you, if you were just investing in Berkshire or if you were investing just like Buffett, what kind of portfolio would you end up with as a result of that?
Christine Benz: Well, Buffett looks for companies that are trading cheaply and also, very high-quality companies. So, those are great attributes. In general though, he tends to find his happiest hunting ground in a couple of major industries, insurance of course and reinsurance and also in some of the industrial manufacturing spaces. So, those are big emphases for the portfolio. Also, it is a pretty domestically focused basket of companies. While Buffett has done some hunting overseas over the past several years, it’s still quite a big domestic emphasis as well.
Jason Stipp: Sure and I know one of the things that Buffett has said before is that sometimes he will put things in the "too hard" pile if you can't understand the business or if it's too outside of his area of expertise, he just won't bother with it. So, there are some areas where he just won't venture. What are some areas where you would be lighter if you were investing just like Buffett invests?
Christine Benz: Well, technology certainly has historically been an area where Berkshire has gone very lightly if at all. So, for someone who is interested in having full sector diversification and again, Jason not everyone wants that but for someone who does want reasonable performance in a variety of market conditions, that might be one sector where you would find Berkshire to be light.
Jason Stipp: Sure. So, if you put together a very Buffett-like portfolio and you just decided that you weren't quite comfortable with the concentrations, you wanted to round out your portfolio and have a little bit more diversification, you have a few ideas for some funds you might want to take a look at, so let us know about those.
Christine Benz: Okay. So, the first one, this is the first fund that crept to mind when I was thinking of not Buffett-like picks. This is Turner Midcap Growth. It is a very aggressively positioned mid-cap growth fund, very high turnover which is quite not Buffett-like and also, a big emphasis on some of those information technology names that we were discussing Buffett typically doesn't invest in.
The other thing that I like about this fund is a complement to a portfolio anchored in Buffett is that the performance patterns will be very, very different. So, when you look back on '08, '09 for example, Turner Midcap Growth was a fund that lost something like 48% in 2008 and gained as much in 2009. Berkshire lost a lot less in 2008 but didn't do nearly so well in 2009. So, I think if you were to plot these two together on a graph and look at their performance, you'd see very different behavior.
Jason Stipp: So, certainly a way it sounds to add a little bit of Octane to the Buffett-like portfolio.
Christine Benz: Right, small slice in that Turner.
Jason Stipp: Small slice, sure. So, the second one you have is again, looking internationally where Buffett may be looking there a little bit more as you said but historically he has looked domestically, so what do you have on the international front?
Christine Benz: Well, this is Artio International Equity II and it is very different from Berkshire in a lot of ways. First of all, it is mainly foreign focused and also, it has some emerging markets and its managers also think about top-down considerations. So, they might decide to over or underweight certain countries or currencies. They also do focus on bottom-up factors just like Buffett does but not exclusively, so that differentiates it somewhat as well.
Jason Stipp: Sure and your last pick I thought was a little bit surprising and maybe it seems a little bit ordinary. Tell us a little bit about your third pick?
Christine Benz: Well, this would be a total market index fund and Vanguard recently ran some data and what they showed was that even people who are very confident in their ability to pick active stock pickers which you would be if you’re delegating stock-picking to Buffett, or a big share of your portfolio to Buffett, even those people could see an improved risk/reward profile for their portfolio by adding a small slice of an index fund.
So, you can really choose whichever one you want. Vanguard, Fidelity and Schwab all have nice low-cost ones but that can help you ensure overall sector diversification in a portfolio that perhaps is anchored by Buffett or Buffett-like picks.
Jason Stipp: Well great, Christine. It sounds like some great Buffett complements that could be useful for your portfolio. Thanks for joining me today.
Christine Benz: Thank you, Jason.
Jason Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.