Celebrity culture may not be your thing. But if you want to give your portfolio some razzle-dazzle, you cannot ignore the stars of the fund management world, the custodians of billions of savings, and the proponents of different styles of investing.
In the UK, Nick Train of Lindsell Train and Terry Smith of Fundsmith dominate the scene. In the US, Warren Buffett, boss of the leviathan Berkshire Hathaway, is the sector’s most influential figure. Its most controversial personality is Cathie Wood, chief executive of Ark Invest, a $14billion group focused on technology companies.
Even if you choose not to back these stars’ funds, their stock picks merit your consideration.
Ed Monk of Fidelity International says: ‘There’s a lot to be gleaned from scouring the top holdings of the top investors. At the very least, you’ll understand better the companies in which these pros have most confidence.’
This week, the professionals have been poring over the remarks made by the 92-year old Buffett at Berkshire Hathaway’s annual general meeting (AGM).
Celebrity fund managers: Warren Buffett, Terry Smith, Cathie Wood and Nick Train
The guru seems cautious about the direction of the stock markets, disinclined to deploy the fund’s $130billion cash pile.
He disapproves of the conduct of bankers, yet Bank of America is the $717billion fund’s second largest holding. At the AGM, Buffett dwelt on the qualities of a potent brand, pointing to the appeal of Tiffany’s iconic blue box.
The jewellery business now belongs to LVMH, the luxury conglomerate headed by French tycoon Bernard Arnault, who based his thinking on Buffett’s buy-and-hold approach. As part of this strategy, Buffett favours businesses with an ‘economic moat’, that something that sets their products apart from those of rivals, so supplying pricing power.
American Express, Chevron and Coca Cola, which account for 38 per cent of Berkshire Hathaway’s portfolio, possess this attribute, but the prime example is Apple which represents 38 per cent. Buffett first bought into the i-Phone maker in 2016 when its shares were $24.91, against $172 today. Thanks to such moves, Berkshire Hathaway’s share price has risen by 200 per cent over the past decade.
Over the same period, Terry Smith has delivered growth of 200 per cent, against the 111 per cent achieved by his peer group.
He is another believer in buy-and-hold and moats. But he only bought into Apple in late 2022 at $125. He called this one of his largest mistakes, but added: ‘Looking in the rear-view mirror isn’t going to help you.’
This useful precept for any investor has helped the £23.4billion Fundsmith recover from a challenging 2022. The fund is up 10.4 per cent, against an increase of 4.9pc in the MSCI World Index.
Currently Smith is betting on technology (Microsoft), beauty (L’Oreal), luxury (LVMH) and smoking (Philip Morris). Novo Nordisk, the business behind slimming drug Wegovy, is his healthcare punt.
My allegiance to Fundsmith has lasted more than a decade, but lately I have been observing the purchases of Nick Train for Lindsell Train UK Equity, Lindsell Train Global Equity and the Finsbury Growth & Income trust.
Over the past decade, he has delivered growth of 216 per cent, against 96 per cent for his peer group. To maintain this record, he is relying on FTSE 100 names such as Relx, Burberry, Diageo, and Unilever.
UK pension funds are not keen on these stocks, but Train argues: ‘If the brands and franchises owned by these companies are of the calibre we believe them to be, and their equity is undervalued, then we are going to capture an outsize share of their future share price gains.’
Cathie Wood’s choices are driven by the conviction that innovation will spark ‘exponential growth trajectories’ for tech groups. But shares in the Ark Innovation fund’s three top holdings – Tesla, Zoom and Roku – have fallen by 31 per cent, 31 per cent and 44 per cent respectively over the past 12 months.
These declines illustrate the risks inherent in building a portfolio based on the major holdings of the stars. Insufficient diversification is another hazard, and Monk also highlights the difficulty of knowing when to sell.
But one plus of copying the stars’ investing selections is the opportunity to save on fees. Annual charges range from 0.75 per cent-1.25 per cent, one reason why Smith may have earned £190m last year.
But Haig Bathgate at investment management group Atomos contends that the publicity surrounding charges can overshadow ‘the care and balance’ that the stars dedicate to stock selection.
On this basis, it may be worth paying the fees to benefit from their expertise. He says: ‘I would caution against trying to replicate their portfolios. It’s hard enough as a market professional.’
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