|By PR Newswire||
|November 16, 2012 09:00 AM EST||
CHICAGO, Nov. 16, 2012 /PRNewswire/ -- Today, Zacks Investment Ideas feature highlights Features: Berkshire Hathaway (BRK.A), Market Vectors Morningstar Wide Moat Research ETF, (NYSE: MOAT), iShares Dow Jones Transportation Average ETF (NYSE: IYT) and SPDR S&P Insurance ETF (KIE)
Invest Like Warren Buffett with These ETFs
Warren Buffett is widely regarded as one of the greatest investors of all-time, and for good reason. The 'Oracle of Omaha' has built up the one time struggling textile manufacturer of Berkshire Hathaway (BRK.A) into a global behemoth with investments in a variety of industries and sectors.
Buffett's incredible track record is best demonstrated by the rise of Berkshire Hathaway's stock price over the years; the security was trading around $340 in 1980 and is now well over $120,000/share today. Meanwhile, since mid-1990, an investment in BRK.A would have added about 1700% compared to an S&P 500 return of roughly 300% in the same time period (read Four ETFs up More Than 30% YTD).
Clearly, Warren Buffett has been able to perform quite well over a very long time period, further adding to his mystique and overall legend. This has led many investors to apply Buffett-like strategies to their own personal portfolios as well, hoping that the deep value strategies of Buffett would rub-off on their overall returns.
In order to tap into these techniques, investors can certainly buy up Berkshire Hathaway shares as a proxy for Buffett's methodology. Yet one has to wonder if this is still the best strategy, given how large Berkshire has become. After all, it could be argued that Buffett, thanks to the size of his firm, can no longer apply his strategies as he once could when Berkshire was much more nimble.
Warren can now only make large bets in order to truly move the needle, a situation which has undoubtedly hurt the investor's impressive returns. In fact, a recent study suggested that in the 00's Buffett didn't add any alpha at all, a far cry from the nearly 19% alpha that he generated for Berkshire in 1956-1968 and the 'golden age' of Buffett's performance in the 1977-1981 period in which he added nearly 30% a year in excess gains (see Inside The Two ETFs Up More Than 140% YTD).
Given this trend, investors may be looking for another way to apply Buffett-like strategies to their portfolios without the clear issues that Berkshire is facing. Warren is no spring chicken at this point anyway, so why take on that added risk of his retirement (or worse) when it is very easy to apply his ideas to the broader stock market without Berkshire's help.
One easy way to do this could be by using a number of specialized ETFs in order to tap into the heart of Buffett's philosophy. These funds offer up Buffett-like exposure but at a fraction of the risk and overall cost as Berkshire, and furthermore, without the overhang of Warren's succession plans as well.
With this backdrop, any of the following three ETFs could make for excellent ways to invest like Buffett from a sector perspective. The Oracle has definitely developed a few favorite industries over the past few decades and we believe that the funds highlighted below offer excellent targeted exposure to some of Warren's favorite segments making them great ways for ETF investors to invest like Warren Buffett:
Wide Moat Investing
Arguably Buffett's most famous investing strategy is to go after so-called 'wide moat' businesses. This type of investing consists of targeting firms that have easily defendable positions thanks to their inherent businesses, strategies, or other market factors (see Time to Consider Wide Moat ETFs).
These companies generally have a huge advantage on one of the following five factors; intangible assets/brands, switching costs, network effects, cost advantages, or efficient scale. Any of these factors, or even a combination of them, generally can provide companies with a barrier against others, just like a moat.
Warren has definitely utilized this in his investing strategy over the years, targeting extremely wide moat companies for not only outright purchase, but investment as well.
In order to target a basket of wide moat firms, investors have a few choices at their disposal although the Market Vectors Morningstar Wide Moat Research ETF (MOAT) is arguably the best choice.
This relatively new ETF tracks the Morningstar Wide Moat Focus Index which is a benchmark of 20 companies that have sustainable competitive advantages. Furthermore, the index only looks at the most attractively priced ones, ensuring a focus on deep value securities (read The Wide Moat ETF Explained).
Currently, the basket consists of a number of firms in the tech, materials, industrials, and financials sectors, with firms that have an advantage on the cost front comprising much of the portfolio. MOAT also zeroes in on large caps for the most part—suggesting a low level of volatility—although mid caps also make up roughly one-fourth of the assets as well.
Volume and AUM are still pretty light for this product, as it is still less than a year old. Still, the product charges a reasonable 49 basis points a year in fees and it has handily outperformed the S&P 500 since its inception, suggesting that there may be something to the strategy in ETF form.
Another wide moat business is that of the transportation sector. Competition is oligopolistic as barriers to entry are extremely high, both in the general delivery business and especially in the railroad sector.
After all, the building, buying, and maintenance of a massive railroad empire isn't something that anyone can start in a short period of time. It is a very capital intensive endeavor, especially if one is looking to build one that can traverse across vast distances of the American landscape.
Probably due to this, the railroad industry has always intrigued Buffett as he was a major investor of Burlington Northern Santa Fe for quite some time, and he had a modest holding in Union Pacific as well. Then, Warren went 'all in on the American economy' buying up the rest of BNSF in a $44 billion dollar deal that cemented Buffett's love of the train industry.
While there isn't a pure railroad ETF at this point in time, investors still have a popular transport ETF in the form of the iShares Dow Jones Transportation Average ETF (IYT).
This ETF unsurprisingly tracks the Dow Jones Transportation Average, which is a broad benchmark of transport stocks based in the U.S. This includes all types of transportation stocks, including passenger, industrial, and general transportation service firms (see Is It Time to Buy the Transportation ETFs?).
Currently, the ETF consists of just 21 holdings overall with the biggest chunk going to railroads at roughly 31% of assets. Additionally it should be noted that railroads account for three of the top five holdings, including Buffett's own UNP at the top with 13% of assets.
The ETF isn't much of a yield destination, however, as it has a payout below 1.3%, although its beta is below one, suggesting that it is a lower volatility choice. Additionally, the product is reasonable from a fee perspective at 47 basis points a year; while volume and assets are relatively high, suggesting extremely tight bid ask spreads for this popular fund.
Another long-time favorite of the Oracle is the insurance industry, the segment that arguably gave Warren his real start in the investing world. That is because Warren is attracted to the 'float' that these companies have or the investable assets that firms have before they have to pay out claims on various insurance policies.
If these assets can be invested effectively, and if they can be easily paid out when claims eventually rise, they can be a huge asset for an insurance company that can greatly expand margins over the long term. Furthermore, Warren argues that these insurance premiums have a near-zero cost of capital that allows Warren to make acquisitions and various other investments, virtually interest-free (see Three Overlooked High Yield ETFs).
These companies currently form the backbone of Berkshire, providing the company with billions in float. Some of the more famous names in the Berkshire portfolio include GEICO and General RE, giving the firm exposure to both general insurance activities and reinsurance as well, both of which provide incredible amounts of cash premiums.
Obviously, this can be easily replicated by any other insurance company, suggesting that a broad look at the space, in order to diversify away risk if there is a catastrophe, could be the way to go. In order to do this, investors have a few insurance ETFs including the popular SPDR S&P Insurance ETF (KIE).
This ETF tracks the S&P Insurance Select Industry Index, which is a modified equal-weight benchmark. It includes companies in the American insurance industry including personal and commercial lines, property/casualty insurance, life insurance, reinsurance, insurance brokerage and financial guarantee.
With its equal weight methodology, the fund does a great job of spreading assets around its roughly 46 components, putting no more than 2.7% in any one security. Still, the product is somewhat concentrated in property and casualty insurance firms as these companies account for just under 40% of the fund (read Protect Your Portfolio with These Insurance ETFs).
The fund has a mediocre yield of just 1.7% though, but the P/E is under ten and the P/B is below 0.9. Investors should also note that the product charges a reasonable 35 basis points a year in fees, while its AUM and volume—assets above $110 million—suggest a pretty low bid ask spread.
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The company continually processes stock reports issued by analysts from numerous brokerage firms. It monitors more than 200,000 earnings estimates, looking for changes. Then when changes are discovered, they're applied to help assign more than 4,400 stocks into five Zacks Rank categories: #1 Strong Buy, #2 Buy, #3 Hold, #4 Sell, and #5 Strong Sell. This proprietary stock picking system; the Zacks Rank, continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter Profit from the Pros. In short, it's your steady flow of profitable ideas GUARANTEED to be worth your time. Register for your free subscription to Profit from the Pros.
Follow us on Twitter: http://twitter.com/ZacksResearch
Join us on Facebook: http://www.facebook.com/ZacksInvestmentResearch
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
SOURCE Zacks Investment Research, Inc.
SYS-CON Events announced today that Peak 10, Inc., a national IT infrastructure and cloud services provider, will exhibit at SYS-CON's 18th International Cloud Expo®, which will take place on June 7-9, 2016, at the Javits Center in New York City, NY. Peak 10 provides reliable, tailored data center and network services, cloud and managed services. Its solutions are designed to scale and adapt to customers’ changing business needs, enabling them to lower costs, improve performance and focus inter...
May. 1, 2016 12:00 AM EDT Reads: 1,053
You think you know what’s in your data. But do you? Most organizations are now aware of the business intelligence represented by their data. Data science stands to take this to a level you never thought of – literally. The techniques of data science, when used with the capabilities of Big Data technologies, can make connections you had not yet imagined, helping you discover new insights and ask new questions of your data. In his session at @ThingsExpo, Sarbjit Sarkaria, data science team lead ...
Apr. 30, 2016 10:45 PM EDT Reads: 675
So, you bought into the current machine learning craze and went on to collect millions/billions of records from this promising new data source. Now, what do you do with them? Too often, the abundance of data quickly turns into an abundance of problems. How do you extract that "magic essence" from your data without falling into the common pitfalls? In her session at @ThingsExpo, Natalia Ponomareva, Software Engineer at Google, will provide tips on how to be successful in large scale machine lear...
Apr. 30, 2016 10:00 PM EDT Reads: 1,091
In his session at @ThingsExpo, Chris Klein, CEO and Co-founder of Rachio, will discuss next generation communities that are using IoT to create more sustainable, intelligent communities. One example is Sterling Ranch, a 10,000 home development that – with the help of Siemens – will integrate IoT technology into the community to provide residents with energy and water savings as well as intelligent security. Everything from stop lights to sprinkler systems to building infrastructures will run ef...
Apr. 30, 2016 05:30 PM EDT Reads: 715
Whether your IoT service is connecting cars, homes, appliances, wearable, cameras or other devices, one question hangs in the balance – how do you actually make money from this service? The ability to turn your IoT service into profit requires the ability to create a monetization strategy that is flexible, scalable and working for you in real-time. It must be a transparent, smoothly implemented strategy that all stakeholders – from customers to the board – will be able to understand and comprehe...
Apr. 30, 2016 04:45 PM EDT Reads: 1,055
Machine Learning helps make complex systems more efficient. By applying advanced Machine Learning techniques such as Cognitive Fingerprinting, wind project operators can utilize these tools to learn from collected data, detect regular patterns, and optimize their own operations. In his session at 18th Cloud Expo, Stuart Gillen, Director of Business Development at SparkCognition, will discuss how research has demonstrated the value of Machine Learning in delivering next generation analytics to im...
Apr. 30, 2016 04:15 PM EDT Reads: 1,667
There is an ever-growing explosion of new devices that are connected to the Internet using “cloud” solutions. This rapid growth is creating a massive new demand for efficient access to data. And it’s not just about connecting to that data anymore. This new demand is bringing new issues and challenges and it is important for companies to scale for the coming growth. And with that scaling comes the need for greater security, gathering and data analysis, storage, connectivity and, of course, the...
Apr. 30, 2016 03:15 PM EDT Reads: 763
This is not a small hotel event. It is also not a big vendor party where politicians and entertainers are more important than real content. This is Cloud Expo, the world's longest-running conference and exhibition focused on Cloud Computing and all that it entails. If you want serious presentations and valuable insight about Cloud Computing for three straight days, then register now for Cloud Expo.
Apr. 30, 2016 02:30 PM EDT Reads: 1,715
IoT device adoption is growing at staggering rates, and with it comes opportunity for developers to meet consumer demand for an ever more connected world. Wireless communication is the key part of the encompassing components of any IoT device. Wireless connectivity enhances the device utility at the expense of ease of use and deployment challenges. Since connectivity is fundamental for IoT device development, engineers must understand how to overcome the hurdles inherent in incorporating multipl...
Apr. 30, 2016 02:15 PM EDT Reads: 1,454
The increasing popularity of the Internet of Things necessitates that our physical and cognitive relationship with wearable technology will change rapidly in the near future. This advent means logging has become a thing of the past. Before, it was on us to track our own data, but now that data is automatically available. What does this mean for mHealth and the "connected" body? In her session at @ThingsExpo, Lisa Calkins, CEO and co-founder of Amadeus Consulting, will discuss the impact of wea...
Apr. 30, 2016 01:15 PM EDT Reads: 666
SYS-CON Events announced today that Stratoscale, the software company developing the next generation data center operating system, will exhibit at SYS-CON's 18th International Cloud Expo®, which will take place on June 7-9, 2016, at the Javits Center in New York City, NY. Stratoscale is revolutionizing the data center with a zero-to-cloud-in-minutes solution. With Stratoscale’s hardware-agnostic, Software Defined Data Center (SDDC) solution to store everything, run anything and scale everywhere...
Apr. 30, 2016 01:15 PM EDT Reads: 1,532
Angular 2 is a complete re-write of the popular framework AngularJS. Programming in Angular 2 is greatly simplified – now it's a component-based well-performing framework. This immersive one-day workshop at 18th Cloud Expo, led by Yakov Fain, a Java Champion and a co-founder of the IT consultancy Farata Systems and the product company SuranceBay, will provide you with everything you wanted to know about Angular 2.
Apr. 30, 2016 12:45 PM EDT Reads: 1,703
SYS-CON Events announced today that Men & Mice, the leading global provider of DNS, DHCP and IP address management overlay solutions, will exhibit at SYS-CON's 18th International Cloud Expo®, which will take place on June 7-9, 2016, at the Javits Center in New York City, NY. The Men & Mice Suite overlay solution is already known for its powerful application in heterogeneous operating environments, enabling enterprises to scale without fuss. Building on a solid range of diverse platform support,...
Apr. 30, 2016 12:00 PM EDT Reads: 2,295
You deployed your app with the Bluemix PaaS and it's gaining some serious traction, so it's time to make some tweaks. Did you design your application in a way that it can scale in the cloud? Were you even thinking about the cloud when you built the app? If not, chances are your app is going to break. Check out this webcast to learn various techniques for designing applications that will scale successfully in Bluemix, for the confidence you need to take your apps to the next level and beyond.
Apr. 30, 2016 11:30 AM EDT Reads: 1,468
We’ve worked with dozens of early adopters across numerous industries and will debunk common misperceptions, which starts with understanding that many of the connected products we’ll use over the next 5 years are already products, they’re just not yet connected. With an IoT product, time-in-market provides much more essential feedback than ever before. Innovation comes from what you do with the data that the connected product provides in order to enhance the customer experience and optimize busi...
Apr. 30, 2016 11:15 AM EDT Reads: 889
Increasing IoT connectivity is forcing enterprises to find elegant solutions to organize and visualize all incoming data from these connected devices with re-configurable dashboard widgets to effectively allow rapid decision-making for everything from immediate actions in tactical situations to strategic analysis and reporting. In his session at 18th Cloud Expo, Shikhir Singh, Senior Developer Relations Manager at Sencha, will discuss how to create HTML5 dashboards that interact with IoT devic...
Apr. 30, 2016 11:00 AM EDT Reads: 925
Artificial Intelligence has the potential to massively disrupt IoT. In his session at 18th Cloud Expo, AJ Abdallat, CEO of Beyond AI, will discuss what the five main drivers are in Artificial Intelligence that could shape the future of the Internet of Things. AJ Abdallat is CEO of Beyond AI. He has over 20 years of management experience in the fields of artificial intelligence, sensors, instruments, devices and software for telecommunications, life sciences, environmental monitoring, process...
Apr. 30, 2016 11:00 AM EDT Reads: 895
SYS-CON Events announced today that Ericsson has been named “Gold Sponsor” of SYS-CON's @ThingsExpo, which will take place on June 7-9, 2016, at the Javits Center in New York, New York. Ericsson is a world leader in the rapidly changing environment of communications technology – providing equipment, software and services to enable transformation through mobility. Some 40 percent of global mobile traffic runs through networks we have supplied. More than 1 billion subscribers around the world re...
Apr. 30, 2016 11:00 AM EDT Reads: 877
Digital payments using wearable devices such as smart watches, fitness trackers, and payment wristbands are an increasing area of focus for industry participants, and consumer acceptance from early trials and deployments has encouraged some of the biggest names in technology and banking to continue their push to drive growth in this nascent market. Wearable payment systems may utilize near field communication (NFC), radio frequency identification (RFID), or quick response (QR) codes and barcodes...
Apr. 30, 2016 10:00 AM EDT Reads: 717
SYS-CON Events announced today that Fusion, a leading provider of cloud services, will exhibit at SYS-CON's 18th International Cloud Expo®, which will take place on June 7-9, 2016, at the Javits Center in New York City, NY. Fusion, a leading provider of integrated cloud solutions to small, medium and large businesses, is the industry's single source for the cloud. Fusion's advanced, proprietary cloud service platform enables the integration of leading edge solutions in the cloud, including cloud...
Apr. 30, 2016 09:45 AM EDT Reads: 2,560