2 ETFs for gaining Buffett exposure

These funds offer different strategies to track the Oracle's investments.

By TheStreet Staff Dec 3, 2010 11:10AM

Credit: (© Paul White/AP)
Caption: Warren BuffettBy Don Dion, TheStreet

 

Throughout Warren Buffett's long and illustrious career, fans, analysts and market commentators have attempted to gain insight into his mind in hopes of mastering his investing strategies.

 

Although there are no specific Buffett ETFs available, there are ways retail investors can use ETFs to add a dose of the Oracle's wisdom to their portfolios.

 

They can gain either direct exposure to him through a fund that boasts respectable exposure to his investing empire, Berkshire Hathaway (BRK.A), or follow the Oracle's lead with products that use some of the same techniques he has used in the construction of his portfolio.

 

Option 1: Direct exposure

One way to access Buffett through ETFs is to look for those that list Berkshire Hathaway as an underlying constituent.

In early 2010, in order to fund his headline-grabbing bid to purchase the remaining shares of Burlington Northern Santa Fe Railroad, Buffett received shareholder approval for a 50-for-1 split for his Berkshire Hathaway Class B Shares (BRK.B).

 

The move drastically reduced the per-share price of the baby Berkshires, making it easier for retail investors to gain access to Buffett's company. The value of a BRK.B share was $81.28 at the close of trading Thursday.

 

Itching for a chance to gain direct access to the financier's mind, investors poured into these dramatically less expensive shares. On the first day of trading post-share-split, BRK.B's volume broke 14 million, a dramatic spike from 250,000 the previous day.

 

As a result of the massive uptick in volume, BRK.B was able to meet the S&P 500 ($INX)'s regulatory requirements and was approved to join the index.

 

Since becoming an official constituent of the S&P 500, BRK.B has been included within the indexes of a collection of passively managed exchange-traded funds.

 

The fund with the heaviest Berkshire Hathaway exposure is the Financial Select Sector SPDR (XLF). BRK.B is listed as the XLF's third largest holding, representing more than 8% of its portfolio.

 

Additionally, Buffett holdings Wells Fargo (WFC), Goldman Sachs (GS) and American Express (AXP) can be found listed among the fund's top 10 positions.

 

Option 2: Mimic Buffett's strategy

A fund like XLF is appropriate for ETF investors looking specifically for an opportunity to add Berkshire Hathaway exposure to their portfolios.

 

However, the fund's top-heavy and sector-specific nature may be a concern. Therefore, fans may find a more diversified fund that uses some of the same techniques more to their liking.

 

In that case, iShares Dow Jones Dividend Select Index Fund (DVY) may be a more appropriate option.

 

Although it does not have any direct exposure to Berkshire Hathaway, the index underlying DVY does have a number of characteristics similar to the Oracle of Omaha's portfolio.

 

Like Berkshire Hathaway, DVY is designed for a long-term buy-and-hold approach to investing. The fund is a collection of stable medium and large dividend-paying companies in a wide range of market sectors. Top holdings include Lorrilard (LO), Centurylink (CTL), Eaton Corp  (ETN), PPG Industries (PPG), Chevron (CVX) and McDonalds (MCD).

 

Throughout the economic turmoil that has raged throughout 2010, DVY has consistently proved itself to be a source of stability and has managed to outperform BRK.B over the past 90 days.

 

There is no doubt that Buffett will continue to make headlines and draw attention from the investing world. XLF and DVY are two examples of unique ways retail investors can follow the wisdom of this world-famous investor.

 

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