3 ETFs That Replicate Buffett's Investment Strategy (MOAT, XLF)

What Are 3 ETFs That Replicate Buffett's Investment Strategy?

Exchange-traded funds (ETFs) and "Buffettology" provide investors with the opportunity to pair one of the most popular investment vehicles with the investing approach of one of the most successful investors.

One popular investing strategy is to emulate a successful investor, such as Warren Buffett, the famed "Oracle of Omaha" and founder of Berkshire Hathaway. Buffett is probably most accurately described as a long-term value investor. He does not look so much for stocks selling at a bargain-basement price as he does for reasonably priced stocks of companies he believes will continue to be financially solid with long-term growth potential.

Also, while Buffett has invested in a variety of sectors over the years, companies within the financial sector, such as Wells Fargo & Company and American Express, remain prominent among Berkshire Hathaway investments.

Key Takeaways

  • A basic part of Warren Buffett's investment strategy is to invest in companies that have a competitive advantage in their industry, which can offer investors a protective "moat."
  • Most investors who want to follow Buffett's strategies invest in his company, Berkshire Hathaway.
  • While there aren't ETFs that track Buffett's investment picks directly, some do follow his general strategy.

Some investors have sought to follow Buffett by purchasing Berkshire Hathaway stock or by purchasing the stocks of individual companies Berkshire Hathaway owns or invests in. However, as ETFs have become a favored investment vehicle, some investors are looking to use them as a way to follow Buffett's investing principles. There is no specific Warren Buffett ETF, but some aim to make Buffett-like investments.

The term "moat" as it relates to investing was coined by Buffett to describe any company with a competitive advantage within an industry that offers it moat-like protection.

Understanding 3 ETFs That Replicate Buffett's Investment Strategy

Market Vectors Wide Moat ETF

The Market Vectors Wide Moat ETF (NYSEARCA: MOAT), launched by Van Eck Global in 2012, aims to identify and invest in such companies. The fund seeks to employ its $3.4 billion in assets in tracking the performance of the Morningstar Wide Moat Focus Index.

The underlying index offers investors exposure to the most attractively priced companies that Morningstar's equity research team identified as having sustainable competitive advantages within their respective industries. This fund has an expense ratio of 0.48% and offers a dividend yield of 1.85%. Its three-year annualized return as of early 2020 is 10.81%.

SPDR Financial Select Sector ETF

The SPDR Financial Select Sector ETF (NYSEARCA: XLF) offers broad exposure to companies in the financial sector, and it also invests directly in Berkshire Hathaway stock, which accounts for over 13% of the fund's portfolio holdings.  This fund was launched by State Street Global Advisors in 1998.

The fund tracks the performance of the S&P Financial Select Sector Index, which includes companies from the broad financial services sector including banks, insurance companies, thrifts, and REITs.  The fund's expense ratio is a low 0.13%, and it offers a dividend yield of 1.93%. The fund's five-year annualized return as of mid 2020 is 5.12%.

iShares Edge MSCI USA Quality Factor ETF

The iShares Edge MSCI USA Quality Factor ETF (NYSEARCA: QUAL), launched in 2013 by BlackRock, has over $18.6 billion in assets as of mid 2020. The fund aims to invest in high-quality stocks by tracking the MSCI USA Sector Neutral Quality Index, which invests in large- and mid-cap stocks selected on the basis of three fundamental metrics: debt to equity (D/E), return on equity (ROE) and earnings variability.

The fund's total return since its inception is 9.35%. It has an expense ratio of 0.15% and a dividend yield of 1.82%. This fund is heavily invested in the technology, financial, and health care sectors.

Article Sources
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  1. Encyclopaedia Brittanica. "Warren Buffet."

  2. CBI Insights. "28 Lessons From Warren Buffett’s Annual Letters To Shareholders."

  3. Fortune. "Mr. Buffett on the Stock Market."

  4. VanEck. "VanEck Vectors Morningstar Wide Moat ETF."

  5. Morningstar. "Wide-Moat Focus Index."

  6. VanEck. "MOAT Performance History: Average Annual Total Returns* (%)."

  7. Select Sector SPDRs. "XLF Holdings."

  8. Select Sector SPDRs. "XLF."

  9. Select Sector SPDRs. "XLF Fact Sheet," Page 1.

  10. S&P Dow Jones Indices. "Financials Select Sector."

  11. Select Sector SPDRs. "The Select Sector SPDR® Trust," Page 1.

  12. Select Sector SPDRs. "XLF Performance."

  13. iShares. "iShares Edge MSCI USA Quality Factor ETF."

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