|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.
What happens when the different parts of a vehicle become smarter than the vehicle itself? As we move toward the era of smart everything, hundreds of entities in a vehicle that communicate with each other, the vehicle and external systems create a need for identity orchestration so that all entities work as a conglomerate. Much like an orchestra without a conductor, without the ability to secure, control, and connect the link between a vehicle’s head unit, devices, and systems and to manage the ...
Dec. 7, 2016 10:30 PM EST Reads: 805
"Once customers get a year into their IoT deployments, they start to realize that they may have been shortsighted in the ways they built out their deployment and the key thing I see a lot of people looking at is - how can I take equipment data, pull it back in an IoT solution and show it in a dashboard," stated Dave McCarthy, Director of Products at Bsquare Corporation, in this SYS-CON.tv interview at @ThingsExpo, held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA.
Dec. 7, 2016 10:00 PM EST Reads: 1,186
Data is the fuel that drives the machine learning algorithmic engines and ultimately provides the business value. In his session at Cloud Expo, Ed Featherston, a director and senior enterprise architect at Collaborative Consulting, discussed the key considerations around quality, volume, timeliness, and pedigree that must be dealt with in order to properly fuel that engine.
Dec. 7, 2016 08:15 PM EST Reads: 2,207
As data explodes in quantity, importance and from new sources, the need for managing and protecting data residing across physical, virtual, and cloud environments grow with it. Managing data includes protecting it, indexing and classifying it for true, long-term management, compliance and E-Discovery. Commvault can ensure this with a single pane of glass solution – whether in a private cloud, a Service Provider delivered public cloud or a hybrid cloud environment – across the heterogeneous enter...
Dec. 7, 2016 05:15 PM EST Reads: 1,753
IoT solutions exploit operational data generated by Internet-connected smart “things” for the purpose of gaining operational insight and producing “better outcomes” (for example, create new business models, eliminate unscheduled maintenance, etc.). The explosive proliferation of IoT solutions will result in an exponential growth in the volume of IoT data, precipitating significant Information Governance issues: who owns the IoT data, what are the rights/duties of IoT solutions adopters towards t...
Dec. 7, 2016 05:15 PM EST Reads: 269
Businesses and business units of all sizes can benefit from cloud computing, but many don't want the cost, performance and security concerns of public cloud nor the complexity of building their own private clouds. Today, some cloud vendors are using artificial intelligence (AI) to simplify cloud deployment and management. In his session at 20th Cloud Expo, Ajay Gulati, Co-founder and CEO of ZeroStack, will discuss how AI can simplify cloud operations. He will cover the following topics: why clou...
Dec. 7, 2016 05:15 PM EST Reads: 930
Everyone knows that truly innovative companies learn as they go along, pushing boundaries in response to market changes and demands. What's more of a mystery is how to balance innovation on a fresh platform built from scratch with the legacy tech stack, product suite and customers that continue to serve as the business' foundation. In his General Session at 19th Cloud Expo, Michael Chambliss, Head of Engineering at ReadyTalk, discussed why and how ReadyTalk diverted from healthy revenue and mor...
Dec. 7, 2016 04:30 PM EST Reads: 1,679
The many IoT deployments around the world are busy integrating smart devices and sensors into their enterprise IT infrastructures. Yet all of this technology – and there are an amazing number of choices – is of no use without the software to gather, communicate, and analyze the new data flows. Without software, there is no IT. In this power panel at @ThingsExpo, moderated by Conference Chair Roger Strukhoff, Dave McCarthy, Director of Products at Bsquare Corporation; Alan Williamson, Principal...
Dec. 7, 2016 04:15 PM EST Reads: 377
The 20th International Cloud Expo has announced that its Call for Papers is open. Cloud Expo, to be held June 6-8, 2017, at the Javits Center in New York City, brings together Cloud Computing, Big Data, Internet of Things, DevOps, Containers, Microservices and WebRTC to one location. With cloud computing driving a higher percentage of enterprise IT budgets every year, it becomes increasingly important to plant your flag in this fast-expanding business opportunity. Submit your speaking proposal ...
Dec. 7, 2016 03:45 PM EST Reads: 2,265
You have great SaaS business app ideas. You want to turn your idea quickly into a functional and engaging proof of concept. You need to be able to modify it to meet customers' needs, and you need to deliver a complete and secure SaaS application. How could you achieve all the above and yet avoid unforeseen IT requirements that add unnecessary cost and complexity? You also want your app to be responsive in any device at any time. In his session at 19th Cloud Expo, Mark Allen, General Manager of...
Dec. 7, 2016 03:30 PM EST Reads: 1,785
Successful digital transformation requires new organizational competencies and capabilities. Research tells us that the biggest impediment to successful transformation is human; consequently, the biggest enabler is a properly skilled and empowered workforce. In the digital age, new individual and collective competencies are required. In his session at 19th Cloud Expo, Bob Newhouse, CEO and founder of Agilitiv, drew together recent research and lessons learned from emerging and established compa...
Dec. 7, 2016 02:30 PM EST Reads: 944
"IoT is going to be a huge industry with a lot of value for end users, for industries, for consumers, for manufacturers. How can we use cloud to effectively manage IoT applications," stated Ian Khan, Innovation & Marketing Manager at Solgeniakhela, in this SYS-CON.tv interview at @ThingsExpo, held November 3-5, 2015, at the Santa Clara Convention Center in Santa Clara, CA.
Dec. 7, 2016 02:30 PM EST Reads: 4,321
Financial Technology has become a topic of intense interest throughout the cloud developer and enterprise IT communities. Accordingly, attendees at the upcoming 20th Cloud Expo at the Javits Center in New York, June 6-8, 2017, will find fresh new content in a new track called FinTech.
Dec. 7, 2016 02:15 PM EST Reads: 2,202
Information technology is an industry that has always experienced change, and the dramatic change sweeping across the industry today could not be truthfully described as the first time we've seen such widespread change impacting customer investments. However, the rate of the change, and the potential outcomes from today's digital transformation has the distinct potential to separate the industry into two camps: Organizations that see the change coming, embrace it, and successful leverage it; and...
Dec. 7, 2016 02:15 PM EST Reads: 3,392
Bert Loomis was a visionary. This general session will highlight how Bert Loomis and people like him inspire us to build great things with small inventions. In their general session at 19th Cloud Expo, Harold Hannon, Architect at IBM Bluemix, and Michael O'Neill, Strategic Business Development at Nvidia, discussed the accelerating pace of AI development and how IBM Cloud and NVIDIA are partnering to bring AI capabilities to "every day," on-demand. They also reviewed two "free infrastructure" pr...
Dec. 7, 2016 02:15 PM EST Reads: 1,122
"Dice has been around for the last 20 years. We have been helping tech professionals find new jobs and career opportunities," explained Manish Dixit, VP of Product and Engineering at Dice, in this SYS-CON.tv interview at 19th Cloud Expo, held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA.
Dec. 7, 2016 01:45 PM EST Reads: 1,127
Extracting business value from Internet of Things (IoT) data doesn’t happen overnight. There are several requirements that must be satisfied, including IoT device enablement, data analysis, real-time detection of complex events and automated orchestration of actions. Unfortunately, too many companies fall short in achieving their business goals by implementing incomplete solutions or not focusing on tangible use cases. In his general session at @ThingsExpo, Dave McCarthy, Director of Products...
Dec. 7, 2016 12:30 PM EST Reads: 853
"At ROHA we develop an app called Catcha. It was developed after we spent a year meeting with, talking to, interacting with senior citizens watching them use their smartphones and talking to them about how they use their smartphones so we could get to know their smartphone behavior," explained Dave Woods, Chief Innovation Officer at ROHA, in this SYS-CON.tv interview at 19th Cloud Expo, held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA.
Dec. 7, 2016 12:30 PM EST Reads: 652
SYS-CON Events has announced today that Roger Strukhoff has been named conference chair of Cloud Expo and @ThingsExpo 2017 New York. The 20th Cloud Expo and 7th @ThingsExpo will take place on June 6-8, 2017, at the Javits Center in New York City, NY. "The Internet of Things brings trillions of dollars of opportunity to developers and enterprise IT, no matter how you measure it," stated Roger Strukhoff. "More importantly, it leverages the power of devices and the Internet to enable us all to im...
Dec. 7, 2016 12:30 PM EST Reads: 757
We are always online. We access our data, our finances, work, and various services on the Internet. But we live in a congested world of information in which the roads were built two decades ago. The quest for better, faster Internet routing has been around for a decade, but nobody solved this problem. We’ve seen band-aid approaches like CDNs that attack a niche's slice of static content part of the Internet, but that’s it. It does not address the dynamic services-based Internet of today. It does...
Dec. 7, 2016 12:00 PM EST Reads: 1,137