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Invest Like Buffett...With ETFs

November 15, 2011 2:03 pm
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So you want to invest like Warren Buffett? Most investors, professional and otherwise, would probably give their right arm to generate the returns that Buffett has over the years. And the good news is investors can easily get their hands on data that shows what stocks Buffett’s Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) owns.

These days, Berkshire has equity stakes in almost 30 companies and with plenty of cash sitting around, that number could easily increase in the coming months.

However, owning 30 different stocks isn’t cost-effective for many investors. Don’t fret because it’s quite easy and far cheaper to assemble an ETF lineup in no time that will have your portfolio looking like a baby Berkshire. The returns are not guaranteed of course, but here are the ETFs that can help you mirror Berkshire’s holdings.

Consumer Staples Select Sector SPDR (NYSE: XLP):
Alright, so the recent 13F filings show Berkshire pared its stake in Kraft (NYSE: KFT), but the conglomerate is still a major shareholder in the largest U.S. food company. Berkshire also owns massive chunks of Procter & Gamble (NYSE: PG), Coca-Cola (NYSE: KO), Costco (Nasdaq: COST), Wal-Mart (NYSE: WMT) and just added a position in CVS Caremark (NYSE: CVS). The stocks mentioned here accounted account for about 43% of XLP’s weight, so you can become very Buffett-esque with just XLP.

Financial Select Sector SPDR (NYSE: XLF):
Not only does Berkshire account for almost 9% of XLF’s weight, the ETF is home to major Berkshire holdings such as American Express (NYSE: AXP) and Wells Fargo (NYSE: WFC). Factor in Berkshire’s Bank of America (NYSE: BAC) exposure along with smaller holdings in Bank of New York Mellon (NYSE: BK), Moody’s (NYSE: MCO) and Torchmark (NYSE: TMK), just to name a few, and over 30% of XLF’s weight can be found in Berkshire’s equity portfolio.

Vanguard Health Care ETF (NYSE: VHT):
A low-cost option for getting some exposure to Johnson & Johnson (NYSE: JNJ), which Berkshire owns. Berkshire also a couple of other pharma names not found in VHT.

Vanguard Total Stock Market ETF (NYSE: VTI):
With a scant expense ratio of just 0.07%, VTI holds over 3,300 stocks, so you’ll get a lot more than just Berkshire holdings here. That said, a large percentage of Berkshire’s equity portfolio appears among VTI’s top-50 holdings. What you’re going to get with VTI is plenty of stocks Berkshire either owns or stocks that fit with the company’s style along with more exposure to the energy and tech sectors.

SPDR Dow Jones Industrial Average (NYSE: DIA):
Easy and cheap. Plus roughly a third of the Dow’s 30 stocks are held by Berkshire.

Bull case:
Obviously, Buffett invests for the long-term and any of these ETFs, with XLF being the the possible exception, make for good long-term investments due to their low expense ratios.

Bear case:
A prolonged bear market. Something really bad that lasted for multiple years and that was so severe that even dividend stocks fell out of favor.

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