The U.S. markets are flying high this year, breaking all previous
records. With the Fed finally deciding to clip the pace of the
bond-buying program by $10 billion starting in January, volatility
has taken a back seat for now. This indicates increased confidence
in the U.S. economy’s growth rate and job outlook.
Further, Ben Bernanke seems committed to keep short-term interest
rates near the zero level until the unemployment rate falls to 6.5%
from the current 7% (and possibly longer). Low rates continue to
encourage spending, hiring and lending (read: Fed Tapers Bond
Purchases: 3 ETFs in Focus on the News).
With that being said, investors will continue to pour money into
riskier assets such as equities, as a strengthening dollar will
once again dull the appeal for safe avenues in 2014. While there
are a number of choices available in the space across various asset
classes, sectors and companies, it is always difficult to choose
the best ones that will provide higher returns.
For making this process simple and easy, investors could follow the
legendary billionaire and philanthropist Warren Buffett for the
selection of sectors and stocks in their portfolio. Warren Buffett
undoubtedly is the most successful investor in the world and made
maximum profits from the surging stock market this year, according
to the latest study by Wealth-X.
Warren Buffett’s equity stock portfolio is up nearly 27.3% to $59.1
billion in 2013 (as of December 11), which reflects a gain of $37
million per day. The returns are well above the S&P 500
benchmark gain of about 22% (read: 3 Sector ETFs Crushing the
Market in 2013).
Going along the lines of Warren Buffett, investors can make
more-than-expected money out of their investments in 2014 but with
a lower level of risk. This can be easily done in the basket form
that comes with low cost and enhanced returns by minimizing the
overall comparable risks compared to an individual stock.
Below, we have highlighted three such ETFs from a variety of
sectors that could be worthwhile for investors in the coming months
that look to match some of Warren’s top sector selections (see: all
ETF Categories here):
iShares U.S. Financial Services ETF
(IYG)
About two-fifths of the Buffett’s portfolio is inclined toward the
financial sector with Wells Fargo (WFC) as the top firm, followed
by US Bancorp (USB). Investors seeking to play this sector could
find IYG an intriguing option. This fund provides exposure to the
banks and financial service stocks by tracking the Dow Jones U.S.
Financial Services Index.
Holding 109 securities, the fund is highly concentrated on the top
10 firms at 60% of total assets. WFC occupies the top position in
the fund’s basket at 10.59% while USB takes the eighth spot with a
3.60% share. From a sector perspective, banks make up for 55% share
while financial services take the remaining portion (read: Can Bank
ETFs Bounce Back After Recent Downgrade?).
The product is relatively popular among investors with AUM of
$602.9 million and average daily volume of roughly 74,000 shares.
The ETF charges 45 bps in fees per year from investors and gained
nearly 40% this year. IYG has a decent Zacks ETF Rank of 3 or
‘Hold’ rating with ‘Low’ risk outlook.
Vanguard Consumer Staples ETF
(VDC)
Warren Buffett has the second largest holding in the consumer
defensive sector with Coca Cola (KO), Procter & Gamble (PG),
and Wal-Mart (WMT) as the top stocks in the portfolio. One great
way to play this preference is with VDC, which follows the MSCI US
Investable Market Consumer Staples 25/50 Index.
The product manages an asset base of $1.7 billion while trades in
volume of more than 64,000 shares per day. The ETF charges a low
fee of 14 bps per year from investors. The fund is guilty of
concentration as the top three firms – PG, KO and WMT – dominate
the fund’s return with combined share of 29% (read: 3 Top Ranked
Consumer ETFs for the Holiday Season).
Within the sector, the product is widely spread across household
products, soft drinks, packaged foods & meat, tobacco and
hypermarkets & super centers that make up for double-digit
allocation. VDC added over 1.74% this year and has a Zacks ETF Rank
of 3 or ‘Hold’ rating with a ‘Low’ risk outlook.
Vanguard Energy ETF
(VDE)
Last month, Warren Buffett added new stakes in Exxon Mobil (XOM),
the largest U.S. oil company, beefing up his energy sector
holdings. Investors could better play this action of the
billionaire with VDE, which tracks the MSCI US Investable Market
Energy 25/50 Index. Holding 168 energy stocks, the product is
highly skewed toward XOM with 22% allocation (read: Play the U.S.
Oil Boom with These Energy ETFs).
Other Buffett-favorite energy stocks such as ConocoPhillips (COP)
and Phillips 66 (PSX) also find its way in the fund’s top 10
holdings. From a sector look, integrated oil & gas make up for
the largest share at 40% of assets closely followed by production
and exploration (27.40%) and equipment services (17.30%).
The fund has amassed $2.5 billion in its asset base while sees good
volume of just under one million shares a day, and expenses come in
at just 0.14%. The ETF added nearly 23% this year and has a Zacks
ETF Rank of 3 or ‘Hold’ rating with a ‘Low’ risk outlook.
Bottom Line
Since Warren Buffett is a long-term investor and his portfolio
includes safe and quality stocks, investors could definitely reap
rewards with these ETFs that follow a stock profile similar to what
the Oracle of Omaha owns.
Want the latest recommendations from Zacks Investment Research?
Today, you can download
7 Best Stocks for the Next 30
Days. Click to get this free report >>
BERKSHIRE HTH-B (BRK.B): Free Stock Analysis Report
ISHARS-US FN SV (IYG): ETF Research Reports
VIPERS-CONS STA (VDC): ETF Research Reports
VIPERS-ENERGY (VDE): ETF Research Reports
To read this article on Zacks.com click here.
Zacks Investment Research
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days. Click
to get this free report
iShares US Financial Ser... (AMEX:IYG)
Historical Stock Chart
From Sep 2024 to Oct 2024
iShares US Financial Ser... (AMEX:IYG)
Historical Stock Chart
From Oct 2023 to Oct 2024