No one can make stock picks like Warren Buffett. Nevertheless, investors can mimic the sector exposures of Buffett’s flagship Berkshire Hathaway (NYSE: BRK-B) through low-cost exchange traded funds.
“Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees,” Warren Buffet said in a 1996 note, reports Victor Reklaitis for MarketWatch. “Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.”
Investors seeking diversified exposure with a decent tilt toward Berkshire, which reported a 46% 2013 Q2 increase in earnings year-over-year, can consider a couple of financial sector ETFs.
The RevenueShares Financials Sector Fund (NYSEArca: RWW) has a 11.6% allocation toward Berkshire, followed by 7.4% in JPMorgan Chase (NYSE: JPM) and 6.8% in Bank of America (NYSE: BAC). The underlying index weights companies by revenue instead of traditional market capitalization. RWW has a 0.49% expense ratio and is up 33.7% year-to-date.
The Financial Sector SPDR Fund (NYSEArca: XLF) has 8.4% allocated in Berkshire, along with 8.6% to Wells Fargo (NYSE: WFC) and 8.4% to JPMorgan Chase. Insurance is the largest sub-sector of the fund at 26.4%, followed by financial services 24.4% and commercial banks 17.8%. This is the largest financial sector ETF with about $17 billion in assets. XLF has a 0.18% expense ratio and has gained 27.9% year-to-date.
The iShares U.S. Financial ETF (NYSEArca: IYF) has a slightly lower allocation to Berkshire at 6.4%, Wells Fargo at 6.6% and JPMorgan at 6.4%. The fund includes 33.3% allocated to banks, 24.8% to financial services and 18.7% in nonlife insurance companies. IYF has a 0.46% expense ratio and has increased 26.3% year-to-date.
Additionally, the Market Vectors Wide Moat ETF (NYSEArca: MOAT) has a 4.9% weighting in Berkshire. The underlying index utilizes a “wide moat” investment strategy that hones in on companies with a competitive advantage, which reflects Buffett’s sentiment on investment choices. MOAT has a 0.49% expense ratio and is up 18.7% year-to-date. [ETF Patterned on Warren Buffett’s Economic ‘Moat’ Approach]
Investors can also cover broad markets that include large blue-chip names found in Berkshire through the SPDR S&P 500 (NYSEArca: SPY), SPDR Dow Jones Industrial Average (NYSEArca: DIA) and Vanguard Total Stock Market ETF (NYSEArca: VTI). SPY has a 0.9% expense ratio and gained 21.2% year-to-date; DIA has a 0.17% expense ratio and rose 21.2% year-to-date; and VTI has a 0.05% expense ratio and increased 22.0% year-to-date.
For more information on the financial sector, visit our financial category.
Max Chen contributed to this article.