Finsbury Growth & Income’s Nick Train and Jupiter European Opportunities’ Alexander Darwall are two investment trust managers that follow an investment approach closest to that of Warren Buffett out of all those with a comparable performance record, according to Kepler Trust Intelligence’s Thomas McMahon.
To identify UK trust managers who have delivered returns resembling those of Buffet (pictured), investment trust analyst McMahon considered those with “the most impressive” information ratios – which measure the excess return and risk relative to a specific benchmark.
Additionally, only those closed-ended strategies with a track record of more than 10 years were considered, although this is less than a quarter of Buffett’s investment career. 
The resulting 10 trusts were scored for beta, quality, value and leverage, a score of one being the highest, and 10 the lowest.
“The Buffett ‘secret sauce’ is leveraging up low beta, cheap, high-quality stocks,” McMahon explained. “This approach has allowed the investor 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.”
The first thing the analyst considered was low beta. As he noted, Buffett’s preference for low beta stocks means that on a simple capital asset pricing model his beta was just 0.69 over the 10-year period of review.
“None of candidates came close to that, with Finsbury Growth and Income and Henderson EuroTrust the closest at 0.85 and 0.87 respectively,” he said.
The next factor the analyst considered was quality, although there too he encountered challenges.
“Unfortunately, we do not have indices with enough of a track record to do a quantitative screen for this factor on our shortlist,” he said. “However, from our meetings with the managers, we know there is a strong quality tilt to a number of the trusts with elite information ratios.”
However, Henderson EuroTrust and Jupiter European Opportunities are among the trusts with a strong quality tilt to the growth companies they look for, noted the analyst.
When looking at value, McMahon found only one growth trust with a value tilt: Schroder Japan Growth overseen by Andrew Rose.
“Rose balances this value approach with a significant tilt towards small caps and a tendency towards high gearing,” said the Kepler analyst.
“While many of the other managers cite valuation as important in their stock selection, in our view it is in each case at best a secondary consideration when compared to Rose’s approach.”
The final factor considered was leverage, although he noted that the net gearing of Buffett’s investment vehicle Berkshire Hathaway is higher over the cycle than most investment trusts.
“Over the past 10 years the highest average net gearing on our shortlist was the 22.5 per cent of Blackrock Throgmorton,” said McMahon.
After ranking all 10 trusts for beta, quality, value and leverage, McMahon noted the most deserving of the ‘Britain’s Buffett’ epithet are Nick Train with Finsbury Growth and Income and Alexander Darwall with Jupiter European Opportunities.
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
Alexander Darwall has run the £857.3m Jupiter European Opportunities trust since launch in 2000.
The manager runs a highly concentrated portfolio and looks for companies which should prosper through different market environments and changes of the cycle.
Darwall looks for shareholder value and places great importance in meeting and understanding management teams, gradually increasing holdings as the information becomes more supportive.
“His success is attested to by the information ratio of 1.09 over 10 years, which is the second-highest in the closed-ended trust sphere,” explained McMahon.
Over 10 years, Jupiter European Opportunities is up by 569.15 per cent compared with a gain of 238.55 per cent for the average investment trust in the IT Europe sector and a 152.26 per cent gain for the FTSE World Europe ex UK benchmark.
The trust is trading at a 0.4 per cent discount to its NAV, is 5 per cent geared and has an ongoing charge of 0.90 per cent, data from the Association of Investment Companies (AIC) shows.
The second trust that qualifies on information ratio metric is the £1.3bn Finsbury Growth and Income trust, managed by Nick Train since 2001.
Train shares his long-term, low turnover approach with Buffett and believes inefficiencies exist in the valuation of what the team calls “great UK businesses”. These are valued using various tools, including a discounted cashflow calculation.
“Train focuses on companies with defendable brands and niches which should allow them to grow faster than the market consistently,” the Kepler analyst said.
“He aims to buy companies with brands or intellectual property which would be hard or impossible to replicate, which often leads him towards steady growth companies such as Unilever, Diageo, Kraft Heinz and Dr Pepper Snapple.
“The focus is on long-term sustainable growth, and the result is a low beta portfolio.”
Finsbury Growth and Income is up by 447.83 per cent over 10 years compared with a gain of 183.13 per cent for the average trust in the IT UK Equity Income sector and a gain of 165.84 per cent for the FTSE All Share.
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
The trust has ongoing charges of 0.70 per cent, is trading at a 0.5 per cent premium, yields 2.0 per cent and is 3 per cent geared, data from the AIC shows.