Investors want to emulate successful market navigators like Warren Buffett, but combing through thousands of stocks for that diamond in the rough is a daunting task.
Buffett is the consummate stock picker but ETF investors can still roughly approximate his Berkshire Hathaway portfolio with broad-based and sector funds.
In fact, Buffett has repeatedly said most investors would be best served by using low-fee index funds. Also, in 2008 he made a 10-year bet that that an S&P 500 index fund would beat a group of hedge funds. He’s ahead on that wager for now.
While Buffett has not disclosed any ETFs in his portfolio, investors can still gain exposure to his positions through ETF picks, writes Tim Parker for Investopedia.
For instance, Buffett’s portfolio includes at least five of the Dow Jones Industrial Average stocks, along with other mega-cap companies like Wells Fargo (WFC) and ConocoPhillips (COP). ETF investors who are interested in blue chip stocks can take a look at the SPDR Dow Jones Industrial Average ETF (DIA) , which comes with a 0.18% expense ratio and a 2.4% yield.
Buffett also includes low beta names and stocks like Coca-Cola (KO) and Procter & Gamble (PG), which he would hold “forever.” The Consumer Staples Select Sector SPDR (XLP) allocates 23.6% of its holdings to KO and PG, and Parker notes that four of the top 10 holdings are also owned by Buffett. XLP has a 0.18% expense ratio and dividend yields of over 3%.
Additionally, the PowerShares Dynamic Foods & Beverage Portfolio (PBJ) covers all the essential basic foods groups, with exposure to companies like Kraft (KRFT), Hershey (HSY) and Papa John’s Pizza (NasadaqGS:PZZA). PBJ has a 1.47% yield and a 0.63% expense ratio.
Looking at opportunities outside of the U.S., a well-rounded portfolio will also include some international portfolio. In keeping with Buffett’s strategy of investing in solid, reliable, developed companies, investors can consider the iShares MSCI EAFE Index (EFA) , which tracks developed countries in Europe, the Far East and Australasia. EFA has a 0.34% expense ratio, which is lower than the category average of 0.51%, and pays dividends of over 3%.
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
- Warren Buffett
- hedge funds