Local fund beats Buffett at his own game

By Meredith Jordan

Atlanta – What would billionaire investor Warren Buffett do? That's what Doug Davenport, president and chief investment officer of Atlanta Investment Counsel LLC, asks himself every day.
Atlanta Investment Counsel was formed in 1998 to act as the adviser to The Wisdom Fund, a mutual fund with the express purpose of paralleling Buffett's Berkshire Hathaway Inc. (NYSE: BRK.A and BRK.B). If Buffett buys something, the fund buys it.
So far, it's working. Year-to-date the mutual fund had returns of 4.63 percent as of March 18, compared with -1.7 percent for the S&P 500. Meanwhile, Berkshire Hathaway was down 2.9 percent year to date.
Not many people can say they've beaten Buffett at his own game.
There are several reasons why the Wisdom Fund has fared better than Berkshire Hathaway in recent times. First, the Wisdom Fund, as a mutual fund, trades at the price of its stock, where Berkshire Hathaway trades at a premium.
The Wisdom Fund does have a cost associated with it. Its management fee, as an expense ratio, is 1.75 percent. That's higher than the average cost of 1.3 percent for a U.S. equity fund. Generally, costs are higher for smaller funds than larger ones, but that lessens with time as assets grow.
The second reason the Wisdom Fund is shining more than Berkshire Hathaway at the moment is that Buffett's insurance enterprise was hit hard by the wake of Sept. 11. Berkshire Hathaway's holdings fall into three groups: insurance companies and privately held companies, publicly traded stock and short-term fixed income investments, Davenport said.
Luckily for the Wisdom Fund, as it turned out, it couldn't invest in the same insurance companies that Buffett was in, because they weren't public or otherwise available. Instead, the fund had to invest in comparables, opting to invest in 16 insurance companies that were not as heavily affected by Sept. 11.
That also worked well for the fund when it tried to match its portfolio with Berkshire Hathaway's after it took Shaw Industries private. Shares of Shaw were no longer for sale, so the Wisdom Fund looked for another carpet company with strong financials. It selected Mohawk Industries Inc. (NYSE: MHK).
Mohawk started at 2 percent of the Wisdom Fund, because Shaw Industries constitutes about 2 percent of the market capitalization of Berkshire Hathaway. The stock has performed so well since then that it now constitutes about 4 percent of the Wisdom Fund's portfolio. Any plans to pare it back?
"We let our winners run," Davenport said. Buffett doesn't pare back his stakes in successful companies, so neither does the Wisdom Fund.