Warren Buffett is probably the best-known investor in the world with an incredibly strong track record to back up his reputation, but AJ Bell has highlighted a select few managers who have been able to beat even the ‘Sage of Omaha’. 
Since 1965, Buffett has made a breath-taking 2,810,526 per cent return for shareholders in his Berkshire Hathaway investment house, compared a rise of ‘only’ 23,454 per cent from the S&P 500.
Of course, very few funds in the UK have a track record stretching back this far so AJ Bell narrowed down its research to the past 20 years, over which time Berkshire Hathaway has made 507.5 per cent (in sterling terms).
Laith Khalaf, financial analyst at AJ Bell, found that there are 160 funds from the Investment Association universe or trusts from the Association of Investment Companies universe that have delivered a higher return than Berkshire Hathaway over the same period.
Source: AJ Bell, FE fundinfo, Thomson Reuters Eikon, total return in sterling between 20 Apr 2001 to 20 Apr 2021
Khalaf added: “Many invest in smaller companies, emerging markets, or specialist themes, so aren’t directly comparable with Buffett.
“These are areas where risks are elevated, and so returns should be higher to compensate. Investors should nonetheless sit up and take notice that these markets have delivered such rich long-term returns and have performed better than the world’s best investor. Investors with long investment horizons should certainly consider exposure to these faster growing areas.”
On the 160 portfolios to beat Buffett, 61 invest in emerging markets, 57 invest in small and midcaps and 18 have specialist mandates such as sector specific funds like tech, mining or financials.
Narrowing down the list further to developed market large-cap equity funds, which are comparable to Berkshire Hathaway, then 24 funds or trusts have outpaced Berkshire Hathaway over the past two decades. The 10 strongest can be seen below.
Source: AJ Bell, FE fundinfo, Thomson Reuters Eikon, total return in sterling between 20 Apr 2001 to 20 Apr 2021
A closer look at the list of the 24 comparable funds or trusts reveals that just a handful have had the same managers at the helm over the past 20 years, making their track records even more comparable.
Scottish Mortgage is one. James Anderson has been running the trust since 2000 and has built a reputation on picking out the most promising growth companies of the future.
Tech stocks that are disrupting their industries – such as Tesla, Amazon and Alibaba – have been favourite holdings of Anderson and have paid off handsomely over the long run.
Anderson recently announced that he will be leaving Scottish Mortgage next year, with co-manager Tom Slater then stepping to become lead manager.
Performance of Scottish Mortgage over 20yrs
Source: FE Analytics
Nick Train and Michael Lindsell are another two of the comparable managers that have beaten Buffett over 20 years, thanks to their preference for durable, cash generative, business franchises like Unilever, PayPal and Nintendo.
Two of their trusts appear on the above list: Lindsell Train IT, which invests in global equities, and Finsbury Growth & Income, which is a UK equity income strategy.
Alexander Darwall is the fourth manager highlighted by AJ Bell’s research, with the performance of Devon Equity Management’s European Opportunities trust. Darwall also managed the Jupiter European fund – which appears on the list – before leaving Jupiter to set up Devon Equity Management.
Darwall is another quality-growth investor, who likes companies exhibit a sustainable competitive advantage that can fuel long-term growth. European Opportunities trust’s top holdings include Novo Nordisk, Experian and RELX.
The fifth manager is Max Ward, which has run Independent Investment Trust since 2000 and was the manager of Scottish Mortgage between 1989 and 2000, before James Anderson.
Ward has an opportunistic, go anywhere approach that is not constrained by the index, with Herald Investment Trust, Team 17 Group and Bytes Technology Group being of the biggest holdings of his trust.
Khalaf finished: “These managers might be running large sums of money, but nowhere near the size of Berkshire Hathaway, which has a market cap in excess of $600bn. They therefore have greater flexibility to invest in more modestly sized companies, and to exit positions more swiftly, which gives them an advantage over Buffett.
“Anderson, Lindsell Train and Darwall are well known for being growth investors, which can be contrasted with Buffett’s out-of-favour (until very recently at least) value approach. However, while the headline investing style may be different, there are similarities in the approaches of these managers.
“They are all high conviction investors, with a buy and hold approach, and a focus on the competitive advantages of the companies they are investing in. What’s more, Buffett has shown himself open to a little dabbling in growth stocks, with purchases of Apple and cloud computing company Snowflake in recent years.”