Legendary investor Warren Buffett struck a cautious tone at the hotly anticipated Annual General Meeting (AGM) of his investment vehicle Berkshire Hathaway (BRK.A). Other than imploring investors to “buy America”, Buffett isn’t excited by any opportunities in the market right now, despite the sell-off. In fact, the veteran investor has sold all his airline stocks and has increased his cash position to an incredible $130 billion.
Using the latest regulatory filings, we have looked at Berkshire Hathaway’s top 10 holdings and found the UK-based funds with similar stocks. While Berkshire is listed as a company, it operates as a “best ideas” fund of more than 50 names and has a market cap of nearly $500 billion. We have looked at UK funds rated by Morningstar Analysts as Neutral and above where the stock accounts for more than 3% of the fund's assets.
Why Buffett Likes Apple
iPhone maker Apple (AAPL), which has a two-star rating from Morningstar analysts, takes up a sizeable chunk of Buffett's portfolio at 36.7%. Why does he like Apple? Its brand and reputation for innovation make customers loyal and, therefore, willing to pay higher prices for its products. This gives the company an enviable economic moat.
Apple has long attracted investors, a major turning point for the firm was the launch of its first iPod back in 2001. Since then, the share price has risen from $1 to $310 this year, a scarcely believable gain of 30,900%.
With that record, it's not surprising the stock features in a number of tech-focused funds. Morningstar analysts think the company has an economic moat, but not a wide one, because an “army of firms [such as Samsung] are targeting its dominance” and consumers are increasingly demanding newer, better products. The iPhone launched in 2007 and is the company’s “jewel in the crown”, according to analyst Abhinav Davuluri, but Apple has yet to invent a blockbuster product to match its success.
Apple is owned by three Silver-rated funds: Merian North American Equity, Polar Capital Technology and tracker fund Fidelity Index World. Apple makes up a decent chunk of the Polar Capital fund, with a 7.67% weighting in the portfolio. The active fund with the biggest weighting to Apple is Neutral-rated Janus Henderson Global Technology, which has a 8.61% exposure to the tech giant. The tech firm is also owned by the Bronze-rated Artemis US Select fund and JPMorgan American Investment Trust (JAM).
Fizzy Drinks and Finance
Buffett's love of Coca-Cola (KO) products as both investor and consumer is well known, and the company makes up just under 10% of Berkshire Hathaway's portfolio. Coca-Cola is rated as a four-star stock by Morningstar analysts with a wide economic moat, with the firm's “ubiquity and brand resonance still going strong after 130 years”.
It doesn't appear to be as exciting a proposition for investors as Apple though, despite a yield of 3.5%. The highest rated UK fund to own Coke is Bronze-rated JPMorgan Global Growth & Income Investment Trust (JGGI).
Sticking with global consumer brands, baked bean giant Kraft Heinz (KHC) makes up 4.7% of the Buffett fund and is a holding of many global and US-focused tracker funds, such as the Silver-rated HSBC FTSE All-World Index Fund.
Seven of Berkshire Hathaway’s 10 biggest holdings are focused on financial services but these aren’t widely held by UK funds – global consumers can buy an Apple iPhone or can of Coke, for example, but don’t use US banking services. Still, a handful of rated funds hold US banks including Silver-rated T. Rowe Price US Large Cap Value Equity, which owns Wells Fargo, and Bronze-rated JPMorgan American Trust, which holds Berkshire’s second biggest holding, Bank of America (BAC).
Many of these names are held by non-rated UK funds for income purposes too. The Liontrust Global Dividend Fund, for example, invests in JPMorgan Chase (JPM), a stock that yields nearly 4%.
Buy What You Know
DIY investors could, of course, just copy Berkshire’s top 10 holdings for themselves; but would you want to skew 70% of your portfolio towards American financial services? If you hold a global tracker fund, you may already have some exposure to Apple, Coca-Cola, Kraft Heinz and JPMorgan. Buffett also owns sizeable stakes in these companies, giving him a level of influence that individual investors could never match.
Of course, owning the same companies doesn’t guarantee the Sage of Omaha’s historic returns of around 19% a year since 1965. But given his stellar track record, investors, both professional and amateur, take a keen interest in which companies he favours. And Buffett’s mantra of buying what you understand and holding for the long-term is one that smaller investors can still emulate. “His investing principles are more important than ever in this time of uncertainty and market volatility,” says Morningstar analyst David Kathman.
