Andrew Bary

A closed-end fund controlled by a billionaire investor in Berkshire Hathaway offers an inexpensive way to get exposure to Berkshire and a group of blue-chip stocks.

The $2.1 billio n SRH Total Return fund has about 41% of its assets in Berkshire stock. Its next three holdings -- JPMorgan Chase, Yum! Brands, and Enterprise Products -- account for another 24%.

The shares, which trade around $16.85, changed hands recently at a 23% discount to their net asset value of nearly $22 a share.

The fund's controlling shareholder is Stewart Horejsi, 87, whose family owns nearly half the stock, which trades under the ticker STEW to reflect Horejsi's role. Closed-end funds issue a fixed number of shares and then trade like stocks at a premium or discount to their asset value based on investor demand. The SRH fund is traded on the NYSE.

Horejsi, born in Kansas, read about Warren Buffett in the book The Money Masters by John Train decades ago and began investing in Berkshire stock when it traded around $300 a share in 1980. The Class A stock finished Tuesday at about $793,000 after hitting a record of nearly $800,000 in the session.

Horejsi's net worth has been estimated by Forbes at about $4 billion, and about $1 billion sits in the SRH Total Return fund. He retired from managing the fund in 2022 after 20 years of overseeing it. His investment advisory firm still runs it. Until 2022, the fund was called Boulder Growth & Income fund.

"We model our investment process on Warren Buffett. We try to find good businesses, not pay too much and take a buy-and-hold approach," says Jacob Hemmer, a co-manager of the fund.

Like Buffett and Buffett's mentor, Ben Graham, the fund aims to invest with a margin of safety, he added.

Hemmer says that while Berkshire stock, which is about 18 percentage points ahead of the S&P 500, may be looking more fully priced now, the fund likes the company's long-term prospects even after the Buffett era ends. Buffett turns 95 in August.

The fund has leverage of about 10% financed with sub-3% debt taken on when rates were at historic lows in 2020.

The fund is narrowly ahead of the S&P 500 index over the past year (ending in February), with a 19% return based on the share price, helped by Berkshire's outperformance.

It is nearly two percentage points behind the index over the past three and five years, reflecting an underweighting in the big tech stocks that have dominated the market.

The fund has traded at a wide discount of 15% to 20% for much of the past several years. The company has large embedded gain in its portfolio, meaning that shareholders would incur taxes if the fund sold some of its holdings. The total portfolio was valued at $2.4 billion at the end of November -- the end of its fiscal year -- and the cost basis was under $800 million. Investors often shy away from funds with big embedded gains for tax reasons.

This situation means the fund is better suited for retirement accounts -- investors wouldn't have to pay taxes on any gains.

The fund's expense ratio is close to 1.2% annually excluding interest expense -- in line with many closed-end funds.

One holder is the Matisse Discounted Closed-End Fund Strategy. Co-manager Eric Boughton tells Barron's he sees several ways to win. The fund could sell highly appreciated securities and distribute them to shareholders, merge with another fund, or buy back shares at a discount.

He says the current discount of around 23% is too wide and could narrow to its average discount in recent years in the high teens.

The big Berkshire investment and the large discount could be a nice combination for investors.

Write to Andrew Bary at andrew.bary@barrons.com

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March 25, 2025 17:59 ET (21:59 GMT)

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