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Follow Warren Buffett With These ETF Strategies

Sanghamitra Saha

Who doesn’t want to follow investment guru Warren Buffett?  His Berkshire Hathaway Inc. BRK.B has added an impressive 207.7% in the past 15 years against the 172.7% gain of the S&P 500 ETF SPY.

Investors ardently following Buffet’s style may find the following list of ETF strategies useful.

Bank Stocks ‘Very Attractive’

Buffett sees bank stocks as “very attractive compared to most other securities’. Banks make up big part of Berkshire Hathaway’s portfolio, which is worth more than $248 billion. Goldman Sachs, JPMorgan Chase, Bank of America, BNY Mellon and U.S. Bancorp were among Berkshire’s 15 largest stock holdings.

Big banks have been boosting shareholders’ wealth through dividend hikes and share buybacks. The valuation is also cheaper for banking stocks (read: Banking Earnings Mixed, ETFs Gain Moderately).

Investors can bank on Zacks #2 (Buy) Financial Select Sector SPDR ETF XLF and Zacks Rank #3 (Hold) iShares U.S. Financials ETF IYF.

Take a Bite of Apple

Berkshire’s Apple AAPL holdings’ value has more than doubled to $78.5 billion since he started buying in 2016. Apple made up about 14% of Berkshire’s market capitalization as of Feb 20, more than any other single stock in its portfolio. Berkshire is Apple’s second-largest shareholder, holding 5.6% of the company at the end of 2019, according to FactSet.

Investor intending to follow Buffett and be part of Apple’s growth story can play ETFs like iShares Dow Jones US Technology ETF IYW and Select Sector SPDR Technology ETF XLK (read: Take a Bite Out of Apple with These ETFs).

“Don’t Buy or Sell” on the Headlines

As markets skidded on the virus scare, Buffett warned investors not to “buy or sell” on the headlines. “Has the 10-year or 20-year outlook for American businesses changed in the last 24 or 48 hours?” Buffett asked on CNBC, as quoted on MarketWatch.

The U.S. economy is on a strong footing. Though the virus jitters might dent growth for a quarter or two, the economy should rebound in the medium term. Tech stocks will probably hold the key, with widespread adoption of emerging technologies. Meanwhile, low rates globally, reduced tax rates in the United States, cheap oil and an upbeat stock market (which can result in wealth effect) should benefit other cyclical sectors too (read: Should You 'Buy or Sell' on the Headlines? ETFs for Long Run).

Investors can bet on SPDR Portfolio S&P 1500 Composite Stock Market ETF SPTM, WisdomTree Cloud Computing Fund WCLD, Health Care Select Sector SPDR ETF XLV and Vanguard Dividend Appreciation ETF VIG with a long-term view.

Buy ETFs Offering Benchmark-Beating Yields

The benchmark U.S. treasury bond yields are slipping to a new all-time low as the coronavirus scare boosted demand for safe-haven assets. On Feb 25, the yield on 10-year U.S. treasuries was as low as 1.30%.

Buffett says “it makes no sense to lend money at 1.4% to the U.S. government, when it’s government policy to have 2% per year inflation.” Plus, this 1.4% yield will be taxed.

Investors can go for bond ETFs like iShares Core 10+ Year USD Bond ETF ILTB (yield 3.22% annually and charges 6 bps), Principal Investment Grade Corporate Active ETF IG (yields 3.66% and charges 26 bps) and SPDR Portfolio Long Term Corporate Bond ETF SPLB (yields 3.59% and charges 7 bps). Equity ETFs like SPDR Portfolio S&P 500 High Dividend ETF SPYD (yields 4.75% and charges 7 bps) can also be tapped.

Democratic Candidate Bloomberg Gets Buffett’s Support

Buffett said he would “certainly” vote for Mike Bloomberg, as quoted on CNBC. Democratic presidential hopeful Michael Bloomberg has been spending heavily on campaign. Wall Street Journal noted that total Bloomberg spending is about 75% of the collective amount of all other campaigns, including Trump’s (read: 2 ETF Areas to Gain From Michael Bloomberg's Campaign).

His support for clean energy and electric vehicles should boost Tesla TSLA) and related ETFs likeGlobal X Autonomous & Electric Vehicles ETF DRIV, Ideanomics NextGen Vehicles & Technology ETF EKAR. ALPS Clean Energy ETF ACES and Invesco Solar ETF TAN  (read: Can Solar ETF Retain its Rally Despite Mixed Earnings?).

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