When it comes to stocks, few companies inspire more loyalty than Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B). But one long-time shareholder is selling Warren Buffett's famous investment vehicle in favor of a wider range of arguably more exciting prospects. What might be most surprising, though, is what this institutional investor is buying to replace its Berkshire shares.

Buddies with Buffett
Sequoia Fund has a long connection to Berkshire. Back in the late 1960s, when Buffett shut down his original investment partnership, he recommended that exiting partners consider investing their money with one of Sequoia's co-founders, Bill Ruane, who was a friend of Buffett's.

Those who did so weren't disappointed with the results. From its founding in 1970 to 1982, Sequoia gained almost 600% -- during a period in which the stock market floundered through bear markets and years of skyrocketing inflation. But in 1982, the fund closed its doors and stopped accepting money from new investors. Only after more than 25 years did the fund reopen, giving people another chance to get in on the successful mutual fund.

Pruning the portfolio
What's interesting about Sequoia, though, is what it has done to its portfolio since reopening two years ago. At the time, Sequoia had about 25% of its assets invested in Berkshire, with a couple of dozen other stocks rounding out its concentrated portfolio. The fund saw its Berkshire position rise as high as 35% while it was still closed to new investors.

Recently, though, Sequoia has drastically cut its Berkshire stake. By June, the fund had reduced Berkshire's position in its portfolio to just more than 12% of assets.

That in itself isn't necessarily such a big shock. After all, Berkshire has risen 20% over the past year, and as the fund's biggest position by far, it's the logical place for fund managers to look to raise cash.

Going for the growth
What is surprising, though, is what fund managers Robert Goldfarb and David Poppe have been buying with the proceeds from Berkshire sales. Here's a sample of most recent fund additions from the latest semiannual report:

  • The fund has put 5.7% of its money into shares of Valeant Pharmaceuticals (NYSE: VRX), a mid-cap pharmaceutical company that makes drugs to treat epilepsy and other neurological diseases, as well as psoriasis and skin diseases.
  • In a turn away from traditional value sectors, Sequoia has bought sizable positions in tech giants IBM (NYSE: IBM) and Google (Nasdaq: GOOG). Technology has long been considered more growth-oriented, so some fund investors might be surprised to see the fund take positions there.
  • Mimicking Buffett's own self-made bailout of Wall Street, the fund also bought shares of Goldman Sachs (NYSE: GS) during the first half of 2010, taking a 2% position in the fund's portfolio.

Those moves have helped shift Sequoia away from its value roots, toward being a large-cap growth fund. Add that to the growth orientation of current No. 2 position Idexx Laboratories (Nasdaq: IDXX), a mid-cap specializing in diagnostic tests for veterinarians, and you have an abrupt about-face for a fund that as recently as 2004 was characterized firmly in the value category.

Reaping the rewards
But at least for now, the fund's performance has held up reasonably well against its peers. Sequoia sustained its reputation of outperforming during bear markets and underperforming during big rallies in 2008 and 2009, in which it went from being a top 3% performer in 2008 to falling to the bottom 3% the following year. So far in 2010, Sequoia is back near the top of the heap, rising 15% versus a gain of less than 8% for the S&P 500.

Perhaps most interesting is the fund's big cash position. Sequoia had more than 20% of its portfolio in cash as of June, which makes its year-to-date performance that much more stunning.

So is Sequoia a better bet with a smaller holding in Berkshire? It's clear that Sequoia isn't the fund it once was, but with Berkshire growing ever larger, true Buffett followers should understand the urge to seek out investments with more potential. Even after going beyond its value roots, it looks like Sequoia has done a reasonable job of finding those investments.

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Fool contributor Dan Caplinger likes both Buffett and variety. He owns shares of Sequoia Fund and Berkshire Hathaway. Berkshire Hathaway and Google are Motley Fool Inside Value picks. Google is a Motley Fool Rule Breakers recommendation. Berkshire Hathaway is a Motley Fool Stock Advisor choice. The Fool owns shares of Berkshire Hathaway, Google, and IBM . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policywants to sit in Charlie Munger's empty chair.