by Tom Taulli | March 15, 2011 12:01 am
According to the latest from Forbes, Warren Buffett is the third richest man in the world, with a net worth of $50 billion. About 90% of his wealth is in the stock of Berkshire Hathaway (NYSE: BRK.A[1], BRK.B[2]). Keep in mind that since 1991, the share price has gone from $6,800 to a whopping $127,600. Yes, with returns like these, it does not take long to get rich. But how can you invest like Warren Buffett[3]?
At 80 years old, there seems to be no stopping Buffett. Last year, Berkshire Hathaway generated $13 billion in profits, up 61%. The company has a diverse footprint in insurance, utilities, energy, railroads, real estate and retail. Oh, and Buffett has $38.2 billion in the bank.
While he probably does not own any mutual funds, it would be interesting to apply his strategies to them. So, let’s see some that would make the cut:
Not many people have mutual funds named after themselves. Then again, Don Yacktman is one of the best money managers on Wall Street. His fund — yes the Yacktman fund — has clocked average annual returns of 14.16% for the past three years and 11.84 for the past decade. It’s the kind of record that would certainly get the attention of Buffett.
Actually, Yacktman has a similar approach to the Oracle of Omaha. That is, he hunts for companies selling at discounts. At the same time, he focuses on mega brands. Some of his top holdings include PepsiCo (NYSE: PEP[4]), Coca-Cola (NYSE: KO[5]) and Procter & Gamble (NYSE: PG[6]). Hey, don’t Buffett stocks[7] include $13.1 billion in Coke stock and about $4.6 billion in P&G?
Yacktman also is not afraid to keep a sizeable amount of the portfolio in cash if he cannot find good bargains. Again, this is another Buffett strategy.
Buffett looks at the total return of an investment — which includes capital appreciation as well as dividends. In fact, dividend income has been critical for his market-beating ways.
Just look at Buffett’s mega acquisition of Burlington Northern Santa Fe in February 2010. Since then, the deal has generated a cool $2.25 billion in dividends. Not bad, huh?
Actually, Buffett says he stands to make even more from dividends, especially with his bank holdings. With the payback of the federal bailout TARP loans, there will likely be aggressive dividend payouts.
So what are some top dividend mutual funds? One to consider is the Columbia Dividend Income Fund (MUTF: LBSAX). Without a doubt, it has been a steady performer. The average annual return was 4.19 for the past five years and 4.07% for the past ten years.
What’s more, the fund has held up fairly well in volatile markets. For example, in the financial crisis of 2008, the fund lost only 27.97%. This was 9% better than the S&P 500.
The Columbia fund, though, does not have a single-minded focus on dividends. It will actually buy lower yielding companies if their cash flow generation is strong. In other words, these types of stocks should eventually pay higher dividends.
While Buffett is highly bullish on the prospects of the U.S., he still realizes that there are enormous opportunities in emerging markets. Consider that Berkshire Hathaway recently setup insurance operations in India. And of course, Buffett has made key investments in countries like China and Israel.
For individual investors, the good news is that it is easy to invest in such markets. However, they can be volatile and often have large holdings in China (which, until recently, has been a no-brainer trade).
So what about funds that take a more restrained approach? Well, there is the Oppenheimer Developing Markets (MUTF: ODMAX[8]), which has $21.8 billion in assets.
Only about 15% of the portfolio is in China. In fact, 28.5% is in Latin America and 8.69% is in the Middle East and Africa. The top holdings include Infosys Technologies (NYSE: INFY[9]), America Movil (NYSE: AMX[10])., and Petroleo Brasileiro (NYSE: PBR[11]).
As of this writing, Tom Taulli did not own a position in any of the stocks named here.
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