In
the financial world, analysts are constantly questioned about every aspect of an
ever evolving market. Which stock will get me the best returns? What should I
invest in? These are just some of the pesky inquiries analysts have to deal
with. Often time, most of the answers to these questions are all over the
place. But there is one question that all analysts agree upon. It is a question
that ETF analysts are particularly used to answering: “Is there a Warren Buffett
ETF?”
To
investors’ dismay, the simple answer is that no ETF can replicate the investing
phenomenon that is Mr. Buffett. But investors have no reason to fret. While it
is true that no single ETF can replicate Buffett’s billions, there are a
handful of ETFs that analysts at Bloomberg have labelled as
“Buffett-esque.”
1.
Market Vectors Wide Moat ETF (MOAT)
Mr.
Buffett is an industry genius. He expects nothing but the best when it comes to
his investments. He particularly looks for companies with cost advantages.
Researchers at Morningstar equity are in this very business. They screen a
staggering 1,500 stocks, closely scrutinizing companies that can undercut
rivals on costs. According to Bloomberg, only 10% of the list gets the wide
moat rating. The analysts pick the 20 cheapest based on a set of fair value
calculations and add them to the index at equal weightings.
If
we look at the past 12 months we can see that MOAT has returned 21%, just
barely shy of the 23% of the S&P 500. MOAT has doubled in size in the last
year. It is currently valued at $823 million. Most of the holdings of MOAT are
large-cap stocks. The biggest downside to MOAT, which would seem to bud heads
with the philosophy of Mr. Buffett’s ideology, is its holding policy. MOAT is
known to rebalance quarterly. About 40 stocks have went in and out of the ETF
over the past year. It has held just one stock (Exelon Corp) since its initial
launch. High turnover is definitely not favorable. After all, we are all
familiar with Mr. Buffett’s golden words – “our favorite holding period is
forever.”
2.
iShares MSCI USA Quality ETF (QUAL)
QUAL
targets mid and large cap companies with high return on equity, low debt and
stable earnings. QUAL currently has 126 stocks in its holdings. About 20% of
its portfolio is in Microsoft, Apple, Exxon Mobil Corp., and Johnson &
Johnson. Since its inception in the July 2013, QUAL is tied with the S&P
500. It has an estimated $494 million in assets and changes a low 0.15%.
3.
Vanguard S&P 500 ETF (VOO)
This
strategy is what Bloomberg call the most “Buffett-esque” ETF of all. The
strategy is much simpler that the others. But you don’t have to take the word
of analysts, this particular strategy comes from Mr. Buffett himself who wrote:
“Put 10% of the cash in short-term government bonds and 90% in a low-cost
S&P 500 Index fund (I suggest Vanguard’s). I believe the trust’s long-term
results from this policy will be superior to those attained by most investors –
whether pension funds, institutions or individuals – who employ high-fee
managers.”
Investors
looking to religiously follow the advice of the aforementioned can look into
VOO. VOO is among the cheapest of the cheap S&P 500 index ETFs. It charges
just 0.05%. According to Bloomberg, nearly all the stocks held by Berkshire are
in VOO. For those looking to invest in the government bond position, there is
the Vanguard Short-Term Government Bond ETF, which charges 0.12%.
Disclaimer: This article was posted with the permission
of a third-party contributor and the opinions contained therein do not
necessarily reflect those of Smallcappower. Smallcappower does not endorse
any investment advice provided by these third-party contributors.
Please
consult your investment advisor before making any investment
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