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Meet the veteran growth investor who picks stocks like Warren Buffett

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Michael Li, a veteran portfolio manager at American Century Investments, is drawing comparisons with Warren Buffett even though his bread and butter is growth investing. The Kansas City, Mo.-based manager has been picking stocks for the firm since the early 2000s, focusing on high-quality growth companies. The biggest mutual fund he oversees — American Century Ultra Fund (TWCUX) , with more than $15 billion in assets under management — has scored a 15% annualized return over the past 10 years, according to Morningstar. “We look for the enduring franchises that can sustain growth for a long time. We don’t really look for niche businesses,” Li said in an interview. “The bar for companies to get into our portfolios is very, very high. Once we identify those companies, we tend to hold them for the long term.” His investing style spurred Morningstar to compare Li with the 91-year-old Buffett, after analysts there searched for mutual funds with the highest percentage of stocks in common with Berkshire Hathaway’s investment portfolio. Li’s two funds — TWCUX as well as American Century Select Fund (TWCIX) — topped Morningstar’s list of “Funds that buy like Buffett.” “I can only see why they would make such a suggestion because we only focus on high quality and that’s true with Warren Buffett,” Li said. “To identify the best quality companies is the key to us and I also believe that’s what he’s looking for.” The standout similarity between Buffett and Li’s portfolios is a large overweight in Apple. Both American Century Select Fund and Ultra fund keep more than 15% of their portfolios in the iPad maker. Meanwhile, Apple has been Berkshire’s No.1 holding for a few years, with its value ballooning to more than $120 billion. The tech giant is also one of Buffett’s most lucrative bets, making the conglomerate more than $100 billion on paper at one point, and described as a home run just like the “Oracle of Omaha’s” longstanding investment in Coca-Cola. “One difference is that he tends to shy away from technology historically — Apple being one exception, and we are sector agnostic,” Li said. “Here is the reality. Technology is touching everything. It’s hard to separate technology from the rest of the world.” Buffett has said he views Apple as a consumer product company and is a big fan of its stock buyback strategy, which allows Berkshire’s ownership to proportionately increase rather than be diluted. The overlap between Li and Buffett’s portfolio is also found in stocks like Moody’s , Mastercard, Visa and Amazon . To find companies that can grow sustainably, Li said he dives into company financials looking for a host of metrics, including growth margin, operating margin, return on investment capital, debt levels and cash flow generation. He also often meets with management to learn about companies’ catalysts that can drive durable business models. “We really try to be the partners with the companies we invest in. We are not looking to make a quick buck,” Li said. Li’s recent picks include biotech company Vertex and semiconductor maker Analog Devices . To be sure, like his peers, Li’s growth-oriented funds have been hit hard this year in the face of surging inflation and rising interest rates. The Select Fund and Ultra Fund are both down more than 25% year to date. The buy-and-hold manager is unfazed by the short-term underperformance. “If we can identify the companies with the strongest competitive advantages, we believe they should be able to pass through the inflation and cost for their products to their customers because of their pricing power,” Li said. “The best way to deal with inflation is still to invest in the best quality companies and best-positioned companies. We are not trying to be the macro forecasters,” Li added. Li said he’s a longtime admirer of Buffett and has attended quite a few Berkshire Hathaway annual shareholder meetings in Omaha — even though his funds don’t hold any Berkshire shares.

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