4 Sectors Warren Buffett Loves: ETFs In Focus

Billionaire investor Warren Buffett is known for his value investing style. Many want to mirror the legend’s investing strategy and emerge a winner. Buffett’s company Berkshire Hathaway’s latest 13-F filing showed that Berkshire’s $299 billion portfolio was invested in 49 companies in the fourth quarter of 2022, unchanged from last quarter.

The top five holdings make up about 75% of the total portfolio, per an article published on Forbes. These five stocks are Apple (AAPL), Bank of America (BAC), Chevron (CVX), Coca-Cola (KO), and American Express (AXP). Apart from these, Berkshire has significant weights in Occidental Petroleum (OXY) and Kraft Heinz (KHC).

With this, Buffett’s portfolio is heavy on the below-mentioned sectors and ETFs. Let’s delve a little deeper.

 

Financials

Buffett’s favorite America Express has exposure to ETFMG Prime Mobile Payments ETFMG Prime Mobile Payments Fund (IPAY) while Bank of America is heavy on the likes of iShares U.S. Financial Services ETF (IYG).

Digital payments have been in the front and center of consumer behavior lately. Apart from showing an increased interest in online shopping, customers are resorting to digital payments to clear their bills. Even, merchants and utility providers are increasingly advocating the same. This explains Buffett’s interest in this field.

As far as banking stocks are concerned, though flattening yield curve could spell trouble to banking stocks, robust loan growth and rising interest rates are pluses. Backed by improvement in consumer spending, banks’ consumer banking businesses are likely to act as a tailwind. Trading revenues are other positives.

 

Energy

Buffett’s Berkshire Hathaway has bet big on the energy companies over the last two years, scooping up loads of Chevron and Occidental Petroleum shares. But in the fourth quarter of 2022, the company sold 1%, or 2.4 million shares, of its Chevron position. Chevron is heavy on energy ETFs like Energy Select Sector SPDR Fund (XLE) and iShares U.S. Energy ETF (IYE).

Meanwhile, Berkshire now controls more than 20% of the outstanding shares in Occidental. Occidental Petroleum Corporation has about 6.37% invested in First Trust Nasdaq Oil & Gas ETF (FTXN). Whatever the case be, a small stake selling in Chevron and still a heavy weight in Occidental say that the energy ETFs are still in fine fettle.

Operating backdrop for the energy sector is also upbeat. Russia announced 5% oil output cut in the coming month as the West enacted price caps on Russian oil and oil products. OPEC crude output too fell in January as the group wanted to keep global markets in balance. Chances of a recession in several economies in 2023 is also lower (which indicates decent demand for energy), though a soft landing is expected in many geographies.

 

Consumer Staples

This is a safe sector as it is non-cyclical in nature. The consumer staples sector tends to do well even amid economic growth slowdown and high inflation. Since consumers have to buy staples products even if they cut back on their discretionary spending, big manufacturers of food and beverages normally have the power to pass on the increase in costs to customers.

Plus, ‘shrinkflation’ is helping the staples companies. ‘Shrinkflation’ is the term to describe the maintenance of companies’ margins by shrinking consumer products in weight, size or quantity while their prices remain the same or are increased. As companies are striving with high raw materials costs and supply-chain issues, many are cutting their product sizes and weights in response.

Buffett’s favorite Coca-Cola has substantial weight in ETFs like Zacks Rank #2 (Buy) iShares U.S. Consumer Staples ETF (IYK) , Kraft Heinz has a focus on Zacks Rank #1 (Strong Buy) Invesco Dynamic Food & Beverage ETF (PBJ).

 

Technology

Apple recently recorded the biggest annual quarterly revenue drop since September 2016.  However, the company is benefiting from continued momentum in the Services segment, driven by strong App Store sales and the robust adoption of Apple Music and Apple Pay.

But Apple’s focus on autonomous vehicles and augmented reality/virtual reality technologies presents a growth opportunity for the long haul.iShares U.S. Technology ETF (IYW) has aZacks Rank #2.


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