Four UK fund managers have performed better than US investment guru Warren Buffett in the last 20 years, according to a new analysis.
While there are 160 funds and investment trusts that have returned more than Buffet’s Berkshire Hathaway (NYSE:BRK.B) since 2001, most are focused on smaller companies, emerging markets, or specialist themes that aren’t directly comparable to the ‘Sage of Omaha’.
But 24 of the UK managers invest in the same sort of developed market large caps, according to AJ Bell, which undertook the analysis, of which four funds have had the same manager or management team for the past 20 years.
Buffett is renowned throughout the investment world for returning an eye-popping 2,810,526% to Berkshire Hathaway investors since 1965, which compares to a 23,454% return from the S&P 500 – or 20% a year compared to 10.2% from the US stock market.
The research was undertaken ahead of the Berkshire Hathaway annual shareholder meeting, which takes place on 1 May, though the “Woodstock for capitalists” jamboree, which attracted almost 40,000 attendees last time, will take place online because of the pandemic, which might make it easier for Buffett’s devoted fans to take notes on his every uttering.
“The Berkshire Hathaway AGM is undoubtedly the biggest investor event in the world,” says Laith Khalaf, financial analyst at AJ Bell.
With 2020 not being a vintage year for Buffett, with his vehicle only returning 2.4% versus 18.4% from the US stock market, Khalaf said the veteran investor’s extraordinary long-term track record means he remains a benchmark in human form.
“Buffett is the longest-standing, and most revered investor in the world. But over the last 20 years, a handful of UK fund managers have actually posted better performance than Buffett, while investing in comparable large cap equities.”
The four are James Anderson, Alexander Darwall, Nick Train and Michael Lindsell, who will all be familiar names to UK fund watchers, with a less heralded manager being Max Ward, manager of the Independent Investment Trust, and a former manager of Scottish Mortgage.
“These managers don’t have the US focus that Buffett does,” says Khalaf, “but that makes their outperformance more impressive, as the S&P 500 has been the best performing major index of the last two decades.”
He noted that passive funds have stolen a march on active managers when it comes to investment flows in recent years, with Buffett himself a somewhat unexpected proponent.
“Investors picking active managers have no guarantee of future success, but the longer a manager’s track record of outperformance, the greater the chance it’s been achieved by skill, rather than luck.
“Anderson, Lindsell Train, Ward and Darwall definitely sit in the skilful category, having bettered the world’s best investor over the last two decades. None can claim to be better than Buffett just yet, who’s still investing at 90, but a dazzling 20-year track record is, at least, a good start.”
Better than Buffett?
Over the last twenty years, Berkshire Hathaway has returned 507.5% to UK investors, in pounds and pence, compared to 353.1% from the S&P 500.
AJ Bell’s analysis of funds and investment trusts found 160 with posted higher returns over this period, though 61 of these invest in emerging markets, 57 invest in small and midcaps, and 18 have specialist mandates such as sector specific funds (e.g. tech, mining, or financials).
The top ten performers over 20 years
Aberdeen Standard Asia Focus – 1,975.7%
Scottish Mortgage Investment Trust – 1,928.1%
Baillie Gifford Pacific Horizon – 1,900.9%
Aberdeen New Thai Investment Trust – 1,655.3%
Lindsell Train Investment Trust PLC – 1,620.7%
Marlborough Special Situations – 1,517.6%
Scottish Oriental Smaller Companies – 1,442.7%
Ninety One UK Smaller Companies – 1,432.9%
Jupiter UK Smaller Companies – 1,414.1%
HgCapital Trust – 1,399.7%
Berkshire Hathaway – 507.5%
Khalf said investors in the UK should take note of the fact that such a large number of smaller companies and emerging markets funds have beaten the world’s best investor over the last twenty years.
“However, these funds aren’t directly comparable to Berkshire Hathaway, as they invest in riskier, sometimes niche areas, that generally can be expected to perform better over the long term.”
Looking just at developed market large cap equity funds, which are comparable to Berkshire Hathaway, 24 funds have performed better.
Baillie Gifford Scottish Mortgage Investment Trust PLC
Lindsell Train Lindsell Train IT plc
Devon Equity Management European Opportunities
Finsbury Growth & Income Trust
|Baillie Gifford Monks Investment Trust||667.5%|
Independent Investment Trust
|Fidelity European Trust PLC||609.7%|
Four managers who have beaten Buffett
Only four management teams out of these 24 funds and trust have managers who have been at the helm throughout this entire period.
Scottish Mortgage – James Anderson has been running this fund since 2000 and has built a reputation on picking out the most promising growth companies of the future, with tech stocks like Tesla, Amazon and Alibaba have been particularly rewarding investments. Anderson however recently announced he will be leaving the trust next year.
Lindsell Train Investment Trust PLC and Finsbury Growth & Income trust – management duo Nick Train and Michael Lindsell have delivered exceptional returns for investors over a very long time frame, both globally and in the UK, by investing in durable, cash generative, business franchises. The Finsbury trust was, like Buffett, a bit of an underperformer last year.
Devon Equity Management European Opportunities – Alexander Darwall invests in companies which exhibit a sustainable competitive advantage and consequently promise long term growth. Until 2019, he also managed the Jupiter European fund which also makes it into the top ten, before leaving to set up his own fund management business.
Independent Investment Trust – Max Ward has been running this trust since 2000 and has a mandate that allows him to be opportunistic and invest anywhere, without any index constraints. Ward, formerly a manager of the Scottish Mortgage trust from 1989 to 2000, has been a long-term backer of UK housebuilding stocks, but has also embraced technology.
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, which as Khalaf said gives them “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.
“While recent years have seen the rise of passive funds, an approach once recommended for everyday investors by Buffett himself, the numbers show there are some exceptional active managers out there who are available to UK investors. There’s no guarantee of future returns, but the longer a track record of outperformance, the greater the chance it’s been achieved by skill, rather than luck.”