Picks from the best fund managers you’ve never heard of
FORTUNE — This one might surprise you: the best stock pickers aren’t always fixtures on CNBC. Some don’t want publicity. In fact, some hustle out of investment conferences as soon as they’re over. These are people like Will Browne of Tweedy Browne, Ken Feinberg of Davis Advisors, and David Poppe of the Sequoia fund — all dyed-in-the-wool value investors who eschew fads and trends in favor of good, old-fashioned research.
Morningstar (MORN) staged them together at its investment conference on Wednesday in a panel titled “Actively Adding Value.” Maybe it’s no surprise that they all share a connection to the best active value-adding investor in history — Warren Buffett. Tweedy Browne was the brokerage house that sold Buffett his first shares of Berkshire Hathaway (BRKA) more than 50 years ago; the late Sequoia fund manager Bill Ruane was classmates at Columbia with Buffett; and Davis Advisors is a longtime Berkshire shareholder.
On Wednesday, Buffett’s genius was one of the few things the three agreed upon.
Browne said there aren’t a lot of opportunities for Tweedy Browne’s Global Value fund, which has beaten 92% of its competitors over the past 15 years by posting 9.5% annualized returns. Stocks might be fairly valued, so he’s content to keep long-term holdings such as Nestle (NSRGF), Heineken (HINKY), and Philip Morris International (PM) — strong consumer brands with enough loyalty pricing power to shine in almost any economy. “We’re sitting on a lot of reasonably valued businesses that pay good dividends,” he said. “Over time they’ll do well.”
Browne noted that he’s wary of U.S. banks, which he called almost impossible to analyze.
In contrast, almost a quarter of Feinberg’s Davis NY Venture fund holdings are in financials. Wells Fargo (WFC), American Express (AXP), and Bank of New York Mellon (BK) were all top five holdings as of February. His partner Chris Davis explained those bets to Fortune earlier this year. Feinberg said Wells Fargo doesn’t have the same risks as Bank of America (BAC), with its huge portfolio of bad Countrywide mortgages, or J.P. Morgan (JPM) and its large derivatives portfolio. “Banking is good business,” he said, “but it’s so easy to screw it up.”
Poppe said the Sequoia fund is very cautious. In 2010 more than 20% of the fund was in cash, yet it still handily beat the S&P 500 by 4.5 percentage points. Sequoia’s longer-term record is just as impressive: in the past 15 years it’s returned nearly 10% to beat the S&P by 3 percentage points. Poppe and co-manager Bob Goldfarb are avoiding indebted companies, and have skipped cyclicals like construction equipment makers in favor of businesses with what Poppe calls enduring competitive advantages. Google is a favorite holding. Its dominant search business has enabled Google (GOOG) to take the lead in online advertising. Berkshire Hathaway and pharmaceutical drugmaker Valeant are others. “We’re looking for businesses with earnings power in all environments,” he said.
Put another way: buy the best in breed. It’s advice all three investors agreed upon.