Berkshire Dips Into ETF Market With Two Bets for a Pension Plan
Warren Buffett’s Berkshire Hathaway just gave its blessing to the $4.6 trillion ETF market—at least in one of its pension plans.
(Bloomberg) -- Legendary investor Warren Buffett’s Berkshire Hathaway Inc. just gave its blessing to the $4.6 trillion exchange-traded fund market -- at least in one of its pension plans.
Berkshire added to the Vanguard S&P 500 ETF, ticker VOO, and SPDR S&P 500 ETF Trust, known as SPY, in the final quarter of 2019, according to a regulatory filing. The relatively small investments, which totaled $25 million across both funds, are Berkshire’s only publicly disclosed ETF holdings in its most recent quarterly 13F filing. The investments are in a pension plan, according to Buffett’s assistant, Debbie Bosanek.
Buffett, whose Berkshire holds a record $128 billion in cash and U.S. Treasury bills, has been questioned before about why he didn’t put the firm’s unused cash into an index fund. The 89-year-old investor said last year at his annual shareholder meeting that he thinks Berkshire should have some cash available to quickly deploy if the chance to strike a big acquisition arises, even though he’d rather own an index fund than U.S. Treasury bills. He argued back in 2007 that he thought Berkshire’s stock picks could do better than the S&P 500 Index. Berkshire’s set to release its annual letter to shareholders on Saturday.
The fourth-quarter addition is arguably the “ultimate endorsement” for ETFs and their different usages, according to Bloomberg Intelligence’s Eric Balchunas. Large institutions will often park money in ETFs to keep exposure to the market while minimizing cash drag in their portfolios, he said -- which is likely what Berkshire has started to do with its record cash pile.
“They use it almost as a temporary parking spot, and I think the liquidity is what they’re attracted to,” Balchunas said.
In that scenario, ETFs are essentially being used as an alternative for derivatives contracts, Balchunas said. He estimates that this manner of institutional usage accounts for roughly 5% to 10% of ETF assets.
Climbing Cash Pile
Berkshire has accumulated a more than $71 billion stake in Apple Inc. in recent years and purchased stock in Kroger Co. and Biogen Inc. during the last three months of 2019.
Still, Berkshire’s failed to find a massive acquisition of a company to keep growing the conglomerate in recent years. That’s weighed on Berkshire stock with the Class A shares increasing nearly 11% last year, short of the almost 29% gain in the S&P 500 during the same period.
In the meantime, Berkshire is likely using these ETFs as a liquidity way-station of sorts, according to Todd Rosenbluth, CFRA Research’s New York-based director of ETF research.
“SPY and VOO provide institutional investors the ability to stay in the market, while keeping their options open as they seek out individual stocks,” Rosenbluth said.
To contact the reporters on this story: Katherine Greifeld in New York at kgreifeld@bloomberg.net;Katherine Chiglinsky in New York at kchiglinsky@bloomberg.net
To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, ;Michael J. Moore at mmoore55@bloomberg.net, Rita Nazareth, Dave Liedtka
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