2 ETFs That Could Help Investors Replicate Warren Buffett's Market Strategy

  • Editor's Pick

Warren Buffett, the widely-followed "Oracle of Omaha" who founded and is currently chairman and CEO of Berkshire Hathaway (NYSE: BRKa ) (NYSE: BRKb ), is one of the US's most prominent buy-and-hold value investors. Buffett's views, on both the economy and markets, expressed in his regular shareholder letters, as well as his long-term investments, typically inspire legions of retail investors.

Since the late 1950s, Buffett along with his long-time partner Charlie Munger have transformed Berkshire Hathaway from a struggling textile group to a conglomerate. In fact, BRK.A stock, which closed on Aug. 13 at $433,124.00 (that is not a misprint), currently has the highest share price of any company in history. Its market capitalization (cap) is greater than $654 billion.

BRK.A Weekly TTM

On Aug. 7, Berkshire Hathaway released Q2 metrics. Operating earnings of $6.69 billion were up 21% year-over-year (YoY). Its holdings in energy businesses and railroads benefitted from an improved economic climate and the reopening of the economy.

The group bought back about $6.0 billion of their own stock. As a result, the six-month share repurchase total stands at $12.6 billion.

As many of our readers would know, Berkshire Hathaway owns numerous businesses, including Geico, the BNSF Railway and See's Candies. It also has sizable investments in various publicly-traded companies, operating mainly in three segments:

  • Banks, insurance and finance (aggregate fair value of $66,479 billion);
  • Consumer products (aggregate fair value of $146,330);
  • Commercial, industrial and other (aggregate fair value of $68,361).

The most recent SEC filing showed that at the end of June, “[a]pproximately 69% of the aggregate fair value was concentrated in four companies." They are:

  • American Express (NYSE: AXP )—$25.1 billion;
  • Apple (NASDAQ: AAPL )—$124.3 billion
  • Bank of America (NYSE: BAC )—$42.6 billion
  • Coca-Cola (NYSE: KO )—$21.6 billion.

Several other names that Berkshire Hathaway currently invests in include AbbVie (NYSE: ABBV ), Amazon (NASDAQ: AMZN ), Bank of New York Mellon (NYSE: BK ), Bristol-Myers Squibb (NYSE: BMY ), DaVita (NYSE: DVA ), General Motors (NYSE: GM ), Kroger (NYSE: KR ), Marsh & McLennan (NYSE: MMC ), Mastercard (NYSE: MA ), Teva Pharmaceutical Industries (NYSE: TEVA ), and Verisign (NASDAQ: VRSN ).

Berkshire Hathaway also invests in the SPDR S&P 500 ETF Trust (NYSE: SPY ), which tracks the S&P 500 Index. It is an exchange-traded fund (ETF) that Buffett believes should be in most retail portfolios.

As the first ETF listed in the US, SPY began trading in January 1993. The fund holds companies across all eleven GICS sectors.

Apple, Microsoft (NASDAQ: MSFT ), Amazon, Facebook (NASDAQ: FB ), and Alphabet (NASDAQ: GOOGL ) (NASDAQ: GOOG ) are the top names in the roster. The leading 10 stocks comprise 28% of net assets of $388.3 billion. So far in the year, SPY is up 32.4% and hit an all-time high on Aug. 13.

With that information, here's another ETF that could be of interest to Buffett followers.

Financial Select Sector SPDR Fund

  • Current Price: $38.58
  • 52-Week Range: $22.94 - $38.95
  • Dividend Yield: 1.50%
  • Expense Ratio: 0.12% per year

The Financial Select Sector SPDR® Fund (NYSE: XLF ) provides exposure to financial services names, including banks, asset managers, insurers, brokers as well as real estate investment trusts (REITs). Since its inception in December 1998, net assets have reached $42.6 billion.XLF Weekly

XLF, which has 65 holdings, tracks the Financial Select Sector index.

Close to 55% of total assets are in the top ten stocks. Among the largest names in the roster are Berkshire Hathaway Class B, JPMorgan Chase (NYSE: JPM ), Bank of America , Wells Fargo (NYSE: WFC ), Morgan Stanley (NYSE: MS ) and Citigroup (NYSE: C ).

A closer inspection of this fund shows that in addition to Berkshire Hathaway, other holdings include several additional names favored by Buffett. As well, since 12.70% of XLF is in BRK.A, buying XLF is an indirect way to gain exposure to stocks held by the conglomerate.

Year-to-date, XLF is up about 30.9% and, like SPY, also hit an ATH on Aug. 13. In other words, the financial sector has been a top performer in 2021. Financial firms have benefited from the economic recovery of the past several months.

Given the recent increase in the share prices of many names in XLF, short-term profit-taking could be in the cards. Interested readers would find a better value between $35-37.

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