Beating Buffett With ETFs
An individual investor looking to trump the returns of Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B) CEO Warren Buffett certainly has a trying task. Buffett did not become one of the best, if not the best, value investors by making many mistakes. Sure, he has had (by his own admission) some gaffes along the way, but over time, Berkshire's equity portfolio has provided astounding returns.
Investors face a couple of obvious problems with trying mimic Buffett's moves. First, the 13-F filings that highlight the stocks Berkshire has bought and sold in a given quarter come out six weeks after the company bought or sold those stocks. Second, Berkshire's equity portfolio is currently comprised of approximately 40 stocks. Some investors might be able to own that many stocks, but few can do so for any significant size in all of those positions.
That is where ETFs come in. In fact, ETFs provide a great avenue for investors to copy Buffett without the capital outlay of owning 40 stocks. Importantly, since some of Buffett's holdings reside in the same sector, investors can easily use ETFs to get exposure to some of the Oracle of Omaha's favorite names. And it is even possible to generate better returns, at least in 2012.
PowerShares KBW Bank Portfolio (NYSE: KBWB) The PowerShares KBW Bank Portfolio is not as well known as some other bank ETFs. Perhaps it should be. KBWB is not even a year old yet and it already has $164.4 million in assets under management. Three Berkshire holdings – Wells Fargo (NYSE: WFC), U.S. Bancorp (NYSE: USB) and M&T Bank (NYSE: MTB) – are found among KBWB's top-10 holdings.
Bank of New York Mellon (NYSE: BK), another Buffett stock, is found in KBWB's lineup. The average returns of those four names this year is inline with KBWB, but is skewed higher by M&T 35.5 year-to-date surge. Bottom line: KBWB has proven to be a better bet than many of Buffett's other bank holdings.
Health Care Select Sector SPDR (NYSE: XLV) Buffet's two major pharmaceuticals holdings – Sanofi (NYSE: SNY) and Johnson & Johnson (NYSEL JNJ) – are up an average of average of 14.1 percent this year. XLV beats that performance by 200 basis points. Yes, the ETF trails Sanofi by about 400 basis, but XLV has also offered nearly double the returns of Dow component Johnson & Johnson.
Consumer Staples Select Sector SPDR (NYSE: XLP) Berkshire own plenty of XLP's marquee holdings, including Procter & Gamble (NYSE: PG), Coca-Cola (NYSE: KO), Wal-Mart (NYSE: WMT) and CVS Caremark (NYSE: CVS). In this case, it depends on which stocks an investor chose to be like Buffett.. Opting for CVS and Wal-Mart has generated returns well in excess of XLP's 8.6 percent year-to-date gain. On the other hand, the ETF has soundly outpaced P&G and Coca-Cola.
PowerShares Dynamic Media Portfolio (NYSE: PBS) Buffett likes media stocks, a fact highlighted by Berkshire's roster, which includes Viacom (NASDAQ: VIA-B), Liberty Media (NASDAQ: LMCA), Gannett (NYSE: GCI), DirecTV (NYSE: DTV) and Washington Post (NYSE: WPO).
Washington Post is the laggard of the group with a 13 percent year-to-date slide that skews the returns of that quintet. PBS, which does not hold Washington Post, is up almost 23 percent this year, putting it well ahead of the aforementioned group of stocks. The ETF tops DirecTV, Viacom and Washington Post in terms of performance, but lags Gannett and Liberty Media.
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