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Disclosure – Non-substantive Research
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. With this commentary, Kepler Partners LLP does not intend to influence your investment firm's behaviour.
Research due to be published in the CFA’s Financial Analysts Journal claims to demystify Warren Buffett’s astonishing long-term success, and shows how he has achieved his incredible run of returns. In a nutshell, the Buffett “secret sauce” is leveraging up low beta, cheap, high quality stocks. This approach has allowed Buffett to generate a high information ratio over a multi-decade career, showing that his active bets have generated significant value over a passive investment strategy.
We identify the UK’s closed-ended fund managers who have had comparable success to Buffett measured by their information ratio (albeit over a shorter time frame) and then identify whose approaches are most similar to Buffett’s. We then consider whether Buffett’s secret sauce is past its sell by date – could it be that the approach which worked so well for him is dated in a world where innovative disruption is occurring at an ever-faster pace and, if so, who are the new contenders for the sage's crown?
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