ETFs To Tap Warren Buffett's Investing Ideas As He Turns 90

To mark the 90th birthday of Warren Buffett, one of the most successful investors in the world, we take a look at his portfolio and some of his investing techniques.

Buffett bought his first stock in 1941 and has grown his net worth from around $10,000 to $80 billion since the 1950s. His portfolio has delivered a compound annual return of 20.3% since 1965. The Oracle of Omaha, a nickname for Warren Buffett, does not believe in diversifying, instead invests in the companies of industries and sectors he knows very well.

Glimpse at Buffett Portfolio

As of Aug 20, the portfolio of the legendary investor was concentrated in three sectors. Technology makes up the largest part of the equity investment portfolio with 46% of assets and Apple (AAPL - Free Report) alone takes the major chunk at 44% share. The stake in the technology giant has ballooned Buffett’s portfolio returns by more than $80 billion over the last three or four years. This is because Apple has been roaring higher and hit the trillion-dollar valuation on Aug 2, 2018. It now has $2 trillion in market cap. This has made the technology giant the first U.S. company to reach this level. Robust third-quarter fiscal 2020 results and excitement over the 4-for-1 stock split news led to the solid rally in shares of AAPL lately.

The financial sector makes up for 32% of the investment portfolio with the top three banks — Bank of America (BAC - Free Report), Wells Fargo (WFC - Free Report), and American Express (AXP - Free Report) — being the top 10 holdings in the Oracle of Omaha. Although Buffett trimmed his stake in two banks — Wells Fargo and JPMorgan Chase (JPM - Free Report) — during the second quarter, he bought $2.1 billion worth of Bank of America in 12 consecutive days in early August. This boosted the legendary investor’s stake in the banking giant to almost 12%. Per Buffett, Bank of America is arguably the most interest-sensitive of all bank stocks, and should therefore be among the first to benefit when lending rates start rising again.

According to Wells Fargo analyst, Mike Mayo on CNBC's "Trading Nation,” Buffett is on the right track as bank stocks could rebound 50% over the next 18-24 months. Investors should note that financials are highly cyclical companies that depend on steady economic growth to drive loan activity and higher interest income. And with the Fed releasing super-easy policies to contain the pandemic slowdown, the sector is expected to get a boost.

Finally, the consumer staples sector accounts for less than 14% of Berkshire Hathaway's investable assets. This is well below the 45.5% allocation given to consumer staples 10 years ago. A bunch of consumer stocks in Buffett portfolio includes Kraft Heinz KHC, The Coca-Cola (KO - Free Report), Mondelez International (MDLZ - Free Report), and Procter & Gamble (PG - Free Report). Apart from sectors, Buffett believes in dividend growth stocks like Coca-Cola, which has hiked dividends for 58 years in a row.

ETF Picks

Given this, we have highlighted some ETF picks from these categories that could be compelling choices for investors seeking to bet on the investment ideas of the legendary billionaire and philanthropist. The investment in ETFs comes with low cost and enhanced returns by minimizing overall risks compared to an individual stock.

Tech ETFs

The ultra-popular tech ETFs — Select Sector SPDR Technology ETF (XLK - Free Report), iShares Dow Jones US Technology ETF IYW, Vanguard Information Technology ETF VGT and MSCI Information Technology Index ETF FTEC — have Apple as their top firm with a double-digit allocation and sport a Zacks Rank #1 (Strong Buy) with a Medium risk outlook.

Financial ETFs

In this sector, Financial Select Sector SPDR Fund (XLF - Free Report) and Vanguard Financials ETF VFH look like solid choices. XLF provides 35.1% exposure in banks, 26.6% in capital markets and 18.7% in insurance companies. On the other hand, diversified banks and regional banks take the largest share of 22.8% and 12.8%, respectively, in VFH. Both these funds have a Zacks Rank #2 (Buy).

For a pure play in the banking industry, SPDR S&P Bank ETF (KBE - Free Report) having a Zacks Rank #2 seems a perfect fit. Regional banks dominate the portfolio with 76.8% share while thrifts & mortgage finance, diversified banks, other diversified financial services, and asset management & custody banks take the remainder.

Consumer Staples ETFs

Though consumer staples ETFs have a negative outlook with most of them having a Zacks ETF Rank #4 (Sell) or 5 (Strong Sell), Consumer Staples Select Sector SPDR Fund (XLP - Free Report), Vanguard Consumer Staples ETF VDC and iShares Evolved U.S. Consumer Staples ETF IECS could be good picks to bet in Warren Buffett ideas. All these funds have substantial exposure in the four above-mentioned consumer stocks.

Dividend Growth ETFs

Some of the popular and top-ranked ETFs in this space are Vanguard Dividend Appreciation ETF VIG and WisdomTree U.S. Quality Dividend Growth ETF DGRW. Both have a Zacks ETF Rank #2.