Warren Buffett, also known as the Oracle of Omaha, is an iconic American investor who has amassed over $60 billion through his investments. Buffet is known for his value investing approach and his holding company, Berkshire Hathaway, has consistently made him one of the world's wealthiest people. As of 2020, he had a reported net worth of $68.9 billion. When it comes to value investing, here are examples of mutual funds that Warren Buffett would buy.

Vanguard 500 Index Fund Investor Shares (VFINX)

The Vanguard 500 Index Fund Investor Shares is one of the most cost-effective mutual funds that offers exposure to U.S. large-capitalization stocks. Issued on Aug. 31, 1976, it seeks to track the performance of the Standard & Poor's 500 Index, its benchmark index. The fund seeks to achieve its investment goal by investing all, or a substantial portion, of its total net assets in stocks comprising its benchmark index. The fund implements a passive indexing strategy, which minimizes its turnover ratio and expense ratio. As of March 22, 2020, it has a turnover rate of 3.9% and charges an expense ratio of 0.14%.

The Vanguard 500 Index Fund Investor Shares also currently has total net assets of $500.9 billion. Its top holdings include blue-chip stocks, such as Apple, Inc., Microsoft Corp., Exxon Mobil Corp., Johnson & Johnson, and Buffett's holding company, Berkshire Hathaway, Inc.

Since it offers a low expense ratio and is tied to the S&P 500 Index, the Oracle of Omaha would probably recommend investing in the Vanguard 500 Index Fund Investor Shares.

Key Takeaways

  • Warren Buffett's investment philosophy focuses on value investing, which means picking stocks and bonds that are "good value" for its perceived worth.
  • Mutual funds Warren Buffett would buy typically have low expense ratios and robust growth over the long-term.

Vanguard Value Index Fund Investor Shares (VIVAX)

Launched on Nov. 2, 1992, with the sponsorship of Vanguard, the Vanguard Value Index Fund Investor Shares seeks to provide investment results corresponding to the performance of the CRSP U.S. Large-Cap Value Index, its benchmark index. As of March 22, 2020, the fund has generated an average annual return of 9.10% since its inception.

The Vanguard Value Index Fund Investor Shares' benchmark index is broadly diversified and includes primarily U.S. large-cap value stocks. To achieve its investment goal, the fund employs an index strategy and seeks to invest all of its net assets in stocks comprising its benchmark index. The fund is managed by the Vanguard Equity Investment Group and charges an expense ratio of 0.17%.

The Vanguard Value Index Fund Investor Shares holds 329 stocks in its portfolio, which has total net assets of $80.6 billion. As of February 29, 2020, it offers an attractive 30-day SEC yield of 2.88%. The fund replicates its benchmark index's sector weights and allocates its portfolio as follows: 21.43% to financial services, 20.19% to healthcare, 12.04% to consumer defensive, 10.62% to industrials, and 7.01% to utilities.

In terms of modern portfolio theory, this fund has a nearly perfect degree of correlation to the S&P 500 Index and outperformed the index by 1.19%. Since it is passively managed and has a high correlation to the S&P 500 Index, Buffett would consider an investment in the Vanguard Value Index Fund Investor Shares.

Fidelity Spartan 500 Index Investor Shares (FXAIX)

The Fidelity Spartan 500 Index Investor Shares is another mutual fund that provides low-cost exposure to the S&P 500 Index, its benchmark index. Issued on Feb. 17, 1988, by Fidelity, this fund seeks to achieve its investment objective by investing at least 80% of its total net assets in common stocks comprising the S&P 500 Index. The fund's investment advisor, Geode Capital Management, employs a passive strategy, which helps to minimize its costs. Consequently, the fund has a turnover ratio of 4% and charges a low net expense ratio of 0.015%. The Fidelity Spartan 500 Index Investor Shares holds 505 stocks in its portfolio, which has total net assets of approximately $219.3 billion.

In terms of modern portfolio theory, the fund is perfectly correlated to and experiences the same degree of volatility as the S&P 500 Index. Although the Oracle of Omaha recommends Vanguard funds, the Fidelity Spartan 500 Index Investor Shares' low expense ratio and indexing approach would probably be a suitable investment for Buffett.

Vanguard Short-Term Treasury Fund Investor Shares (VFISX)

In addition to recommending low-cost funds tied to the S&P 500 Index, Buffett recommends investing a small portion of cash in short-term government bonds. Issued in October 1991 by Vanguard, the Vanguard Short-Term Treasury Fund Investor Shares provides low-cost exposure to the U.S. short-term government bond market. The fund is managed by the Vanguard Fixed Income Group and charges a low net expense ratio of 0.2%.

The Vanguard Short-Term Treasury Fund Investor Shares aims to provide its investors with income with a limited degree of volatility. To achieve its investment goal, the fund invests 97.6% of its total net assets in U.S. short-term Treasury securities. The fund holds 124 bonds in its portfolio, which has total net assets of $8.2 billion. On average, this mutual fund's portfolio of bonds has an average effective duration of 2.2 years, which indicates it carries a low degree of interest rate risk. Since the Vanguard Short-Term Treasury Fund Investor Shares is considered a low-risk investment and has a low average effective duration, it offers a moderate 30-day SEC yield of 0.83%, as of March 22, 2020.

As of March 22, 2020, the Vanguard Short-Term Treasury Fund Investor Shares has generated an average annual return of 3.90% since its inception. Based on trailing 10-year data, this fund experiences a low degree of volatility and provides satisfactory returns on a risk-adjusted basis. In terms of modern portfolio theory, the Vanguard Short-Term Treasury Fund Investor Shares is best suited for conservative fixed-income investors with a short-term investment horizon seeking to gain exposure to the U.S. Treasury market. Since Buffett recommends his estate trustee invest 10% of his wife's portfolio to short-term government bonds, the Oracle of Omaha would probably be comfortable with an investment in the Vanguard Short-Term Treasury Fund Investor Shares.