ETF tracks Buffett's mega-cap picks

A single fund holds some of the Oracle's most popular big-company investments.

By TheStreet Staff Feb 18, 2011 11:48AM

By Don Dion, TheStreet

 

It has been a busy week for Warren Buffett fans.

 

On top of Buffett's visit to the White House -- where he, George H.W. Bush, Maya Angelou and others were honored by President Barack Obama and presented with the Presidential Medal of Freedom -- the Berkshire Hathaway (BRK.A)13F filing was released to the public.

 

Oberservers have spent the week fiercely digging through the document in hopes of uncovering clues to Buffett's view of the global market.

 

In the final months of 2010, Buffett made some tweaks to his legendary portfolio. Overall, the famously bullish investor ended the quarter as a net seller, unloading shares of a number of his holdings and further increasing the size of his already substantial pile of cash.

 

Bank of America (BAC), Nike (NKE), Comcast (CMSCA), Lowes (LOW), Finserv (FISV) and Nalco (NLC) were among the biggest of Buffett's trims. This quarter these positions were closed out completely.

 

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While Buffett's portfolio cuts received most of the attention this week, he made some purchases as well.

 

His second-largest holding, Wells Fargo (WFC), received a vote of confidence when Buffett added 6.2 million shares to his already sizable stake. Wells now accounts for 20% Berkshire's portfolio.

 

Last quarter's action highlights a conservative shift and some streamlining. As I've explained in the past, because of  the size of Berkshire Hathaway, Buffett can no longer expect to score big profits by investing in small, fast-moving companies. Instead, he must rely on the long-term stable returns of mega-cap companies.

 

For the start of 2011, this strategy has proved successful. Improving economic conditions have been beneficial for many large companies. As a result, some of the biggest names underlying the Berkshire umbrella have also become some of the portfolio's strongest movers.

According to a report from Bespoke, two standout performers are the energy goliath Exxon Mobil (XOM) and the U.S. conglomerate General Electric (GE). As of Feb. 16, year to date, the two companies are up 15% and17%, respectively.

 

Strength cannot be felt everywhere, however. Buffett's largest holding, Coca-Cola (KO), has been a noticeable lag, causing the portfolio to slightly underperform the broad S&P 500 ($INX). Shares of KO have dipped more 3% in 2011.

 

An ETF such as the iShares S&P 100 Index Fund (IOO) may be a strong option for conservative-minded investors looking for a way to mimic Buffett's increasing taste for large- and mega-cap companies.

 

On top of listing XOM and GE as its top two positions, IOO exposes investors to a number of other well-known Buffett holdings, including Procter & Gamble (PG), Johnson & Johnson (JNJ) and Coca Cola.

 

Looking ahead, although Buffett appears to have been in a selling mood over the past three months, it is unlikely that his view of the economic recovery has changed. As the markets heal and investors take cautious steps back into equities, large, stable companies will likely continue to be a popular destination. A fund such as IOO instantly provides investors with exposure to a wide range of those leaders.

 

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