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ETF Investing Lessons from Warren Buffett

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Billionaire investor Warren Buffett tuned 87 on Wednesday. And on the occasion, he shared a many investment tips in interviews. With Buffet’s Berkshire Hathaway Inc. BRK-B gaining over 108% over the last five years against the SPDR S&P 500 ETF’s (SPY - Free Report) advancement of 70.5%, it is many people’s dream to follow his investment ideas. Below we highlight some.

Be Big on Bank of America

Warren Buffett's Berkshire Hathaway turned out to be the largest shareholder of Bank of America (BAC) by “exercising crisis-era warrants to buy 700 million shares at below-market price” and locking in an $11.5 billion investment gain. Buffett’s interests on Bank of America puts BAC-heavy ETFs like iShares U.S. Financial Services ETF (IYG - Free Report) , PowerShares KBW Bank Portfolio (KBWB - Free Report) and Financial Select Sector SPDR Fund (XLF - Free Report) in focus.

Buffet Loves Apple

Buffett is outright bullish on Apple (AAPL - Free Report) . In May, he indicated that the Apple stock is a buy candidate as consumers ‘want the product’ despite its prices. On August 30, Buffett told CNBC he hasn't ever “sold a share of Apple.” Berkshire first tapped Apple shares in 2016 and has garnered about 130.2 million shares of the tech giant, as of June 30, 2017.

Investors intending to follow Buffett and be part of Apple’s growth story, can play ETFs like iShares Dow Jones US Technology ETF (IYW - Free Report) , Select Sector SPDR Technology ETF (XLK - Free Report) and Vanguard Information Technology ETF (VGT - Free Report) .

IBM Falls From Buffett’s Favor

Buffett is now less confident about its one-time favorite International Business Machines Corporation (IBM - Free Report) shares. Berkshire possessed about 81 million shares of IBM at the end of 2016 but cut down its positions to about 54 million shares in the first and second quarters of 2017, as per an article published on thestreet.com (read: Forget IBM, Buy These Thematic Tech ETFs Instead).

IBM continued its streak of earnings beat for the eleventh consecutive quarter in Q2 of 2017, it continued to miss on revenues. So, investors following Buffett may opt to stay away from the likes of First Trust NASDAQ Technology Dividend Index Fund (TDIV - Free Report) as the fund has about 7.5% weight in IBM. But the fund's top holding is Apple, which is a positive for the fund.

Stay Out of Mondelez

Warren Buffett showed a thumbs down to rising speculation about Kraft Heinz’s buying of Mondelez International (MDLZ - Free Report) . Notably, Berkshire is the largest shareholder in Kraft Heinz and regulates the company along with private equity firm 3G Capital. Mondelez International tumbled following Buffett’s remarks, causing a slight dent in staples ETFs like Vanguard Consumer Staples ETF (VDC - Free Report) .

Small-Cap ETFs Under Pressure?

Buffett doubts if the U.S. is a 3% GDP economy – Q2 growth rate and the mark set by the Trump administration. The government’s actual data trumped expectations of 2.7% and marked upbeat consumer spending and strong business investment.  Buffett feels it is a “2 percent growth economy.”

Oracle of Omaha also pointed out that “if uninsured losses from Hurricane Harvey top $150 billion it would hurt the economy.” This toned-down comment puts small-cap ETFs like iSharesRussell 2000 ETF (IWM) and SPDR S&P 600 Small Cap ETF SLY at risk as small-caps offer true domestic exposure (read: 3 Reasons to Dump Small-Cap ETFs Now).

Stocks Still More Compelling than Bonds

Putting down overvaluation concerns in equity markets, Buffett said that stocks will beat bonds from the valuation perspective, because interest rates are still very low. No doubt, after a multi-year rally and a special bounce after Trump’s win late last year, U.S. stocks sport a rich valuation. This is why cash is heaping up at Berkshire.

This calls for investing in value ETFs like Fidelity Value Factor ETF FVAL, Cambria Value and Momentum ETF VAMO, PowerShares S&P 500 Enhanced Value Portfolio SPVU or Guggenheim S&P 500 Pure Value RPV (read: 5 Smart Beta ETFs With Brilliant Returns).

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 Index ETF GURU. These funds generally track investment strategies of Wall Street legends.

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