Soaraway funds that even beat the mighty Warren Buffet… and the lessons EVERY investor could learn from the legendary ‘Sage of Omaha’

Phenomenal: Since Warren Buffett started in 1965, he has delivered returns of 4,384,749 per cent to savers in Berkshire Hathaway

Warren Buffett is the Goliath of the investing world. Since he started in 1965, he has delivered returns of 4,384,749 per cent to savers in his investment vehicle Berkshire Hathaway.

That means someone who put in $100 at the beginning would now be sitting on a knockout $4.3 million (£3.4 million).

It is no wonder the 93-year-old is feted worldwide and his annual shareholder meeting – to be held this Saturday in Buffett’s home town of Omaha, Nebraska – is more like a festival than a typical, subdued AGM.

Surely no one beats this? Well, not exactly.

Wealth has teamed up with investment platform AJ Bell to identify the funds and investment trusts that have beaten Berkshire Hathaway’s returns over the past 20 years.

So few funds have been around since 1965 that it is hard to find any that have beaten him over that period. However, over 20 years, 41 out of 973 funds and investment trusts available to UK investors have beaten Buffett, according to AJ Bell (see table above).

Berkshire Hathaway posted an impressive dollar return of 555 per cent over 20 years. This means an 855 per cent return for UK investors as the pound’s value has weakened over the period.

If a UK investor put £1,000 into Berkshire Hathaway 20 years ago, it would be worth £9,549 today. The strategy is impressively simple. Berkshire Hathaway has built up a portfolio of more than 40 blue-chip companies – such as Apple, Bank of America, American Express and Chevron. Buffett concerns himself with finding great firms at a good price, rather than worrying too much over the outlook for economies and financial markets. Then he holds for the long term.

However, if you had put £1,000 into FSSA Indian Subcontinent, which is the top performing fund, you would have gained far more – an impressive £25,081.

Ben Yearsley, director of Fairview Investing, says there are very good reasons for the fund’s ‘astonishing’ performance. ‘India is the world’s biggest democracy and one of the most dynamic economies, which has been turbo-charged by Prime Minister Modi,’ he says.

However, he cautions that as India is one of the best-performing markets, it is also now one of the most expensive. This reduces the chance that such a fund could produce such spectacular performance over the next 20 years.

Jason Hollands, managing director of investment platform Bestinvest by Evelyn Partners, points out that of the top-ten outperformers, five are technology funds: AXA Framlington Global Technology, Polar Capital Technology, Fidelity Global Technology, Janus Henderson Global Tech Leaders and Allianz Technology Trust.

He says it’s unsurprising such funds have delivered high returns as technology firms have experienced phenomenal growth.

‘Tech stocks, and tech-enabled businesses like Amazon and Facebook owner Meta, have been the standout part of global stock markets over the last 20 years,’ he says. ‘Twenty years ago, tech was left battered and bruised from the bursting of the dotcom bubble, but it has since surged to become 30 per cent of the US stock market. It has now benefited from mania about artificial intelligence.’

He adds that the trusts and funds that have beaten Berkshire Hathaway are specialist funds and have a much narrower portfolio.

These outperforming funds and trusts may be winners now, but there is no guarantee they will produce similarly magnificent returns in the next 20 years.

Their fund managers can of course claim some credit, but a good portion of their success is due to the fact they benefited from rising markets in the area they invested in.

By contrast, Berkshire Hathaway has achieved great returns not from growth from a particular sector, but by investing broadly in several. It has outperformed in all market conditions.

So, what can investors take from this? Arguably the trick is to glean the insights of the so-called Sage of Omaha, rather than trying to beat him. He has dropped many pearls of wisdom over the years.

First of these is to be long term. One of Buffett’s most famous quotes is: ‘Our favourite holding period is for ever’. Berkshire Hathaway’s portfolio bears this out. It has held shares in Coca-Cola for more than 34 years, American Express for 29 and credit ratings agency Moody’s for 22.

But holding for the long term doesn’t mean holding indefinitely, or cutting your losses when an investment isn’t working out. Meddling with your portfolio often increases the risk of buying and selling at the wrong time and incurring trading fees.

Another Buffett strategy is to use tracker – or index – funds. In 2016, he wrote in his Berkshire Hathaway report that ‘both large and small investors should stick with low-cost index funds.’ These are funds in which holdings are not hand picked and curated by an active fund manager, but just follow an index such as the FTSE 100 or the S&P 500.

As these funds follow the market, they do not outperform. But they are often cheaper as investors do not pay for a manager.

Laith Khalaf, head of investment analysis at AJ Bell, says this doesn’t seem to make sense ‘for a man who’s made a fortune by active money management’. However, look at the numbers and you see the logic. Less than a third of actively-managed equity funds in the UK have outperformed passive alternatives in the past decade, according to AJ Bell.

Investors do not have to choose between active and passive funds, but can build a core of low-cost passive funds and then use actively-managed options where they believe these can add value.

A third Buffett rule is never to invest in what you don’t understand. He says: ‘Risk comes from not knowing what you’re doing.’

It is for this reason that he avoids things like cryptocurrency and instead invests in household brands with easy to understand business models.

Khalaf says this advice can prevent you losing money and feeling buyer’s remorse.

However, savers often put off investing, feeling they don’t know enough – but sometimes the best way to learn is by starting.