Should you copy the star stock pickers? Your portfolio could benefit

Celebrity culture may not be your cup of tea. But if you want to give your portfolio a dazzling effect, you can’t ignore the stars of the fund management world, the custodians of billions of savings and the proponents of different investment styles.

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 industry’s most influential figure. The most controversial personality is Cathie Wood, CEO of Ark Invest, a $14 billion group focused on technology companies.

Even if you choose not to support these stars’ funds, their stock selection deserves your consideration.

Ed Monk of Fidelity International says, “There’s a lot to be gained from sifting through the top holdings of the top investors. Then you will at least have a better understanding of the companies in which these professionals have the most confidence.’

This week, the professionals took to the remarks of 92-year-old Buffett at Berkshire Hathaway’s annual general meeting (AGM).

The guru seems cautious about the direction of stock markets, disinclined to bet the fund’s $130 billion in cash.

He disapproves of bankers’ behavior, but Bank of America is the fund’s second-largest holding at $717 billion. At the AGM, Buffett reflected on the qualities of a powerful brand, pointing to the appeal of Tiffany’s iconic blue box.

The jewelry company is now owned by 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 favors companies with an “economic moat,” something that differentiates their products from those of rivals, providing pricing power.

American Express, Chevron and Coca Cola, which represent 38 percent of Berkshire Hathaway’s portfolio, have this trait, but the prime example is Apple, which represents 38 percent. Buffett first bought into the iPhone maker in 2016 when shares were $24.91, up from $172 today. Thanks to such moves, Berkshire Hathaway’s stock price has risen 200 percent over the past decade.

In the same period, Terry Smith has achieved a growth of 200 percent, compared to the 111 percent achieved by his peer group.

He is another believer in buy-and-hold and moats. But he didn’t buy Apple for $125 until late 2022. He called this one of his biggest mistakes, but added, “Looking in the rearview mirror isn’t going to help you.”

This helpful prescription for any investor has helped the £23.4bn Fundsmith recover from a challenging 2022. The fund is up 10.4% against a 4.9% rise in the MSCI World Index.

Smith is currently betting on technology (Microsoft), beauty (L’Oréal), luxury (LVMH) and smoking (Philip Morris). Novo Nordisk, the company behind the weight-loss drug Wegovy, is his health point.

My loyalty to Fundsmith has lasted for over a decade, but lately I’ve been following Nick Train’s purchases for Lindsell Train UK Equity, Lindsell Train Global Equity and the Finsbury Growth & Income trust.

Over the past decade, he has achieved growth of 216 percent, compared to 96 percent for his peer group. To maintain this record, he relies 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 of these companies are of the caliber we think they are, and their equity capital is undervalued, then we are going to take an inordinate share of their future share price gains. .’

Cathie Wood’s choices are driven by a belief that innovation will fuel “exponential growth trajectories” for technology groups. But shares in the Ark Innovation fund’s three top holdings — Tesla, Zoom, and Roku — are down 31 percent, 31 percent, and 44 percent, respectively, over the past 12 months.

These declines illustrate the risks inherent in building a portfolio based on the major positions of the stars. Insufficient diversification is another danger, and Monk also points to the difficulty of knowing when to sell.

But one benefit of copying the stars’ investment selections is the opportunity to cut costs. The annual cost ranges from 0.75 percent to 1.25 percent, one of the reasons Smith earned £190 million last year.

But Haig Bathgate of investment management group Atomos argues that the publicity around the costs could overshadow “the care and balance” the stars spend on stock picking.

Based on this, it may be worth paying the fees to take advantage of their expertise. He says, “I would caution against copying their portfolios. It’s hard enough as a market professional.’