Warren Buffet is undoubtedly one of the greatest investors in history. Every year, thousands of investors and fund managers flock to Omaha for the annual Berkshire Hathaway shareholders’ meeting to get some investing lessons from the “Oracle of Omaha”.
Many investors would like to emulate Buffett’s time-tested investing style in their personal portfolios. Of course some of Buffett’s deals are beyond the reach of common investors. Being “Warren Buffett”, he can almost dictate deal terms to companies—look at his deal with Goldman Sachs at the height of the financial crisis.
However common investors can certainly learn from his investment strategy and style. He likes companies with proven business models that are expected to consistently perform well over a long period of time. Further he identifies those businesses that he thinks are trading below their intrinsic values. (Read: 3Excellent REIT ETFs you should not ignore)
Buffett does not care for short term performance of his holdings, if he believes in their long term potential. He currently favors stocks over bonds; he thinks that bonds are a "terrible" investment right now because they are "priced artificially" high due to the Federal Reserve's massive asset buying program. While not as "cheap" as they were a few years ago, Buffett thinks stocks are now "reasonably priced" and not "ridiculously" high.
Investors seeking to emulate his investing style should look at some of the ETFs that hold some of the high quality companies that either find a place in Buffett’s portfolio or are the type of companies Buffett would like to invest in. (Read: 4 Excellent Dividend ETFs for Income and Stability)
Market Vectors Wide Moat ETF (MOAT)
The term “economic moat” was popularized by Warren Buffet who said that he seeks "economic castles protected by unbreachable 'moats'.” In simple words, a moat is a unique competitive advantage that allows a company to outperform others in the same industry over time.
Thanks to MOAT, investors can now own a diversified group of such potential winners. Launched in April last year, MOAT has equal-weighted exposure to 20 least-expensive wide-moat companies. These are mostly large-cap companies with sustainable competitive advantage in their respective industries.
The product charges 49 basis points in annual expenses. It has lagged behind the broader market this year with a return of 10.76% compared with 14.37% return for SPY. (Read; Are there really High-Dividend, Low-Risk ETFs)
However the index strategy has worked in the longer term. In five years through July 2012, the Moat index gained 7.4% annualized, with dividends, versus a total return of 1.1% for the S&P index with dividends.
Consumer Staples Select Sector SPRD Fund (XLP)
Warren Buffet loves consumer staples companies like Coca-Cola, Wal-Mart and Proctor & Gamble, which are among Berkshire’s top holdings. XLP is an excellent option to get exposure to Warren’s favorite consumer staples stocks.
The ETF invests more than 13% of its assets in P&G, its largest holding and more than 10% and 8% respectively in Coca Cola and Wal-Mart, which are its second and fourth largest holdings. Most of the top holdings of the ETF are large, high-quality companies that are household names with sustainable competitive advantage.
Launched in December 1998, this ETF has so far attracted $7.4 billion in assets. It charges a low expense ratio of 18 basis points annually. Additionally the fund has an attractive dividend yield of 2.64%.
Financial Select Sector SPDR Fund (XLF)
By holdings this ETF, you can get a slice of Buffet’s Berkshire Hathaway, which is fund’s top holding with a 8.6% exposure and also some of Buffet’s favorite stocks including two of Berkshire “Big Four” investments--Wells Fargo (WFC) and American Express. XLF invests about 8% of its assets in WFC and 3% in Amex.
Wells Fargo is Buffett’s ‘favorite’ bank; he has talked about the bank several times and also indicated that Berkshire’s ownership interest in this company is likely to increase in the future.
With more than $12 billion in assets, this is largest product in the financial equity ETFs space and with high trading volumes, it is the most liquid. Further, with just 18 basis points expense ratio, it is also the cheapest fund. XLF has a dividend yield of 1.6% currently.
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- Warren Buffet
- Berkshire Hathaway