U.S. Markets closed

Invest Like Warren Buffett with These ETF Strategies

Sanghamitra Saha

Who doesn’t dream of becoming an investment guru like Warren Buffett, Carl Icahn, Daniel Loeb and David Tepper? After all, these Wall Street legends have made the best use of their money and continue to reap huge returns.

Buffett’s Berkshire Hathaway Inc. BRK.B has added more than 125% over the last 10 years (as of May 9, 2017) that is way better than the gain of about 60% from the broader market ETF SPDR S&P 500 ETF SPY during the same timeframe.

Below we highlight some snippets from Berkshire Hathaway's annual meeting so that retail investors can take cues from them and land up on some possibly fascinating investing strategies via stocks and ETFs.

Invest in Apple ETFs

Buffett is outright bullish on Apple. He indicated that Apple stock is a buy candidate as consumers ‘want the product’ despite its prices. The in-fashion stock gained over 2.7% on May 8, 2017 after Berkshire Hathaway revealed that it beefed up its stake in the company to about $20 billion in recent months, as perMarketWatch.

The Apple stock has a Momentum score of ‘A’ along with a Value score of ‘B.’ Investors intending to follow Buffett and be part of Apple’s growth story, can play ETFs like iShares Dow Jones US Technology ETF IYW, Select Sector SPDR Technology ETF XLK and Vanguard Information Technology ETF VGT (read: Take a Bite Out of Apple with These ETFs).

Add Amazon to Your Cart

Buffett called himself “too dumb to realize what was going to happen” with Amazon and that’s why did not add the super stock to his kitty. On May 8, 2017, Amazon.com Inc. AMZN added about 1.6%. It has a VGM (Value-Growth-Momentum) score of ‘B.’ The underlying industry of the stock is in top 41% and the Zacks Sector rank is in the top 25%.

Airlines Flying Low, But Make Take Altitude

According to Buffett, the company is “the largest holder of the four largest airlines.” May be airline companies are not giving stellar returns as evident by the 5.9% returns offered by US Global Jets ETF JETS against7.2% returned by SPY, but Buffett seems to be hopeful on the space for the long term.

Buffett expects airlines to “operate at higher degrees of capacity over the next five or 10 years than the historical rates” and appears pleased at the fact that airlines “at present are earning quite high returns on invested capital.” The Zacks sector rank is presently in the bottom 38% (see all industrial ETFs here).

Visit India but be Aware of High Valuation

India ETFs are on a tear this year on economic optimism. Solid GDP data defying demonetization, the win of the pro-growth prime minister’s party in some key states, implementation of goods-and-services tax or GST from July, a weaker greenback and subdued U.S. Treasury bond yields driving foreign inflows benefited India investing (read: 5 Reasons to Buy India ETFs Now).

Buffett also sees 'incredible' potential in India investing. But he also pointed out that "if you tell me a wonderful company in India that might be available for sale, I'll be there tomorrow." After a stellar run this year as indicated by the 20.6% returns offered by iShares India 50 INDY and about 40% offered by Columbia India Small Cap ETF SCIN, India ETFs are red hot now. So, investors may land up on those with relatively low valuation. As per an article published on CNNMoney, excessive red tape is another cause that has deterred Buffett from not having a stake in the Indian market.

Rush to Low Cost Funds

Buffett appreciated the low-cost structure offered by index funds and praised Vanguard founder Jack Bogle’s initiatives in offering low-priced products. With several issuers including BlackRock and Fidelity jumping on the bandwagon of fee cut, it is now quite evident that low cost ETFs are the ones that will be in vogue in the coming days and that investors will also be able to make sizable money out of these themes (read: Expenses Matter: Dive into 7 Low Cost ETFs).  

Examples of broader market ETFs with ultra-low expense ratios that can be considered at the current operating backdrop are Schwab U.S. Broad Market ETF SCHB and iShares Core S&P Total U.S. Stock Market ETF ITOT (0.03% expense ratio) and iShares Core S&P Total U.S. Stock Market ETF(VTI) (0.04% expense ratio) (read: Why Schwab Will Dominate the World of Low-Cost ETF Investing).

Finally Build a Billionaire-Like Portfolio

While investing in Berkshire or tracking Buffett’s interest in an individual stock and ETF basis is always a good way of following him, there are numerous other ways to imitate this stock market veteran’s investment theme. One can easily get exposure to funds like Direxion iBillionaire ETF IBLN, Validea Market Legends ETF VALX or Guru Holdings Index ETF GURU. These funds generally track investment strategies of Wall Street legends.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Amazon.com, Inc. (AMZN): Free Stock Analysis Report
 
SPDR-TECH SELS (XLK): ETF Research Reports
 
SPDR-SP 500 TR (SPY): ETF Research Reports
 
ISHARS-SP INDIA (INDY): ETF Research Reports
 
VIPERS-INFO TEC (VGT): ETF Research Reports
 
ISHARS-US TECH (IYW): ETF Research Reports
 
ISHARS-1500 IDX (ITOT): ETF Research Reports
 
US GLOBAL JETS (JETS): ETF Research Reports
 
SCHWAB-US BR MK (SCHB): ETF Research Reports
 
COL-INDIA SC (SCIN): ETF Research Reports
 
Berkshire Hathaway Inc. (BRK.B): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report