As exchange traded funds have become more popular among retail investors, there has been consistent chatter about ETFs that Warren Buffett might by if he dabbled in these products, building an ETF portfolio that taps into some of Berkshire Hathaway’s (NYSE: BRK-B) equity holdings and ETFs that focus on some of Buffett’s favorite investing virtues, such as dividends and wide moats.
Sector ETFs such as the Financial Select Sector SPDR (NYSEArca: XLF) and the Consumer Staples Select Sector SPDR (NYSEArca: XLP) offer exposure to plenty of Berkshire holdings. The Market Vectors Wide Moat ETF (NYSEArca: MOAT) takes things a step further by not only feature several Berkshire positions on its roster, but by focusing companies with deep competitive advantages as well. [Berkshire a Boon for These ETFs]
TheiShares MSCI USA Quality Factor ETF (NYSEArca: QUAL) also deserves consideration as a “Buffett ETF.” Just 13 months old and already a $490.8 million ETF, QUAL is part of a growing lineup of ETFs that focus on the quality factor.
QUAL tracks the MSCI USA Quality Index. That index emphasizes return on equity, earnings variability and debt-to-equity in the selection of large- and mid-cap U.S. stocks. [Different Quality ETFs]
“Buffett has cited good returns on equity, consistent earnings power and low debt as elements ofhis acquisition criteria. And those three measures are what QUAL, one of four “factor” ETFs launched by iShares last year, focuses on in its portfolio. Factors are characteristics shared by a group of stocks, like size or momentum, that explain their excess return over the market in certain periods,” reports Eric Balchunas for Bloomberg.
QUAL, which charges just 0.15 per year, low among strategic beta ETFs, holds 126 stocks. Although none garner a weight of more than 5.5%, the ETF is home to several Buffett favorites. Dow components Johnson & Johnson (NYSEL JNJ), IBM (NYSE: IBM) and Exxon Mobil (NYSE: XOM) combine for nearly 14% of QUAL’s weight and all three are top-10 holdings in the ETF. All three were Berkshire holdings at the end of the second quarter as well.