If you thought it was only index funds that copied a portfolio, you are really mistaken. The US-based Wisdom Fund follows the strategy of investment guru Warren Buffett as closely as possible. This fund aims to realise the investment objective of Buffett's Berkshire Hathaway simply by owning the same securities as Berkshire, or those that closely resemble Buffet's securities, and in the same relative proportion as Berkshire's portfolio. Wisdom Fund is a registered investment company while Berkshire is a publicly held company.
Berkshire invests in common stocks of both publicly traded and privately held companies. While it is easy for Wisdom Fund to invest in publicly held stocks in the same proportion as Berkshire does, it is not possible for the fund to invest in privately-held companies that Berkshire buys. In such a situation, Wisdom Fund attempts to identify and invest in publicly traded securities with similar characteristics as that of privately held companies that Berkshire picks up.
One could ask why should one invest here and not in Berkshire directly? It has been observed that Berkshire trades at a significant premium to its actual asset value, which will not be the case if one invests in Wisdom Fund. But what happens if Warren Buffett decides not to manage Berkshire any more? This question doesn't worry fund managers at Wisdom Fund too much as they believe that whoever heads Berkshire will continue with Buffett's philosophy.
One may wonder if such a strategy can work successfully. The fact is that it has. Wisdom Fund has outperformed Berkshire since its inception in February 1999. This has been possible because its financial and insurance holdings have performed better than those of Berkshire. Morningstar has rated the fund a five-star fund. It charges a management fee of 0.50 per cent for this brilliant idea.