Warren Buffett is best known for his largest bet: A massive stake in Apple (AAPL). But his second-largest sector position, financials, is starting to pay off. And ETFs are a way for you to join in.
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Financial stocks, like Bank of America (BAC) and American Express (AXP), account for more than 21% of the public holdings of Buffett’s Berkshire Hathaway (BRKB), says an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. That’s No. 2 behind the entire portfolio’s nearly 48% weight in technology stocks — which is almost entirely Apple.
And lately, Buffett’s financial tilt is working out. The Financial Select Sector SPDR Fund (XLF) is up 7.6% since the beginning of June. That tops the S&P 500’s 5.2% rise in that time. It also blows away the 1.2% rise of the Technology Select Sector SPDR ETF (XLK). Keep in mind, too, S&P 500 financials yield nearly 2%, while tech stocks pay just 0.7%.
Buffett’s big bet outside of S&P 500 tech stocks is part of an important shift in the market now. Most of the “Magnificent Seven” big-cap tech stocks are struggling in August after leading most of the year.
“For a number of years, I’ve been calling Warren Buffett’s Berkshire Hathaway ‘America’s No. 1 Retirement Stock’ because it offers a unique combination of safety, growth, and undervaluation,” said Whitney Tilson of Empire Financial Research.
Warren Buffett Stocks: Financials Start To Pay Off
Financial stocks may not be considered magnificent. But they’re starting to shine anyway.
Bank of America and American Express are Berkshire Hathaway’s second and third largest public positions after Apple. Bank of America alone accounts for 9.2% of the market value of Berkshire’s U.S.-listed portfolio. It’s smaller than Apple’s at 49%. But it’s still an important holding. Berkshire Hathaway owns nearly 13% of Bank of America, versus just 5.8% of Apple.
And these financials are starting to outperform even Apple. Shares of Bank of America are up 5.4% since June, topping the 0.4% loss by Apple. American Express shares are up 1.4% in that time.
Parsing Between Financial S&P 500 ETFs
If you don’t want to choose the best financial stocks, ETFs can help. They package parts of the sector into a single ticker that will expose to you to the sector.
Keep in mind, though, the financial ETFs are very different from each other. And their huge range of results underscore that. The top 10 largest financial ETFs’ performance ranges as low of 2.3% to as high as 14.9% since June 1.
Financial Select Sector SPDR is the largest financial ETF sporting assets of north of $34 billion. It exposes you to all the key elements of the financial sector including banks, insurance and mortgage.
Interestingly, the largest holding in the financial ETF is Berkshire Hathaway itself at 13.4%, says Vetta Fi. That’s followed by a 9.5% weight in JPMorgan Chase (JPM). Financial Select Sector SPDR might be the largest and among the most diversified financial ETF. But it’s not the top performer. It’s up 7.6% since June and down 0.1% this year so far.
Financial ETFs that focus on banks have outperformed since June. The $3 billion-in-assets SPDR S&P Regional Banking ETF (KRE) jumped 15% since June. It’s important to note, though, it’s still down 24% this year so far. Many of its holdings got hit early in the year amid worries about bank failures. Its top holding is Western Alliance (WAL) at 2.4% of the portfolio.
Don’t Bank Too Much On S&P 500 Banks
Caution is warranted, though, even as “bank stocks have caught a bid from improving economic conditions,” said Jack Ablin, chief investment officer at Cresset Capital Management. Keep in mind that if you own the S&P 500, financials are already the No. 3 top weighting at 12.6%.
“It’s too early for banks,” Ablin said. “The regulatory environment is tightening making their lending businesses more difficult. Perhaps there’s a consolidation play as the nations and regionals snap up their small brethren.”
Buffett’s Biggest Bets
Financial stocks rank No. 2 in Berkshire Hathaway’s holdings
| Sector | Weight in public portfolio | Sector % ch. from June 1 |
|---|---|---|
| Information technology | 47.6% | 1.2% |
| Financials | 21.2 | 7.6 |
| Consumer staples | 10.9 | 1.1 |
| Energy | 9.5 | 13.5 |
| Industrials | 5.6 | 10.4 |
| Communication services | 2.0 | 6.4 |
| Consumer discretionary | 1.8 | 9.4 |
| Health care | 1.1 | 5.3 |
| Materials | 0.3 | 8.0 |
| S&P 500 | 5.2 |
