How Buffett Stocks Beat S&P 500: ETF Strategies to Follow

Buffett is famous for his incredible investment ideas. If you an ardent follower of the investment guru Warren Buffett, you might find his latest investments intriguing. Normally, Buffett takes interest in companies trading below what he believes is their intrinsic value. He aims for long-term outperformance and apparently ignores short-term downturns.

Notably, Buffett’s investments beat the S&P 500 by a wide margin this year, apart from the bank stocks. Chevron (CVX) (up 21.7%), HP (HPQ) (up 75.9%), Coca-Cola (KO) (up 6.6%) beat the S&P 500 (down 18.1%). Only Citigroup (C) (down 22.5%) and Bank of America (BAC) (down 23%) underperformed the S&P 500 (down 18.1%).

In the past three months, BAC (down 18%) and CVX (down 16%) underperformed the S&P 500 (down 13.1%). Other companies Coca-Cola (down 1.4%), HP (down 7.8%), Citigroup (down 7.8%), Chevron (down 16%) outperformed the S&P 500.

However, in the past one month (as of Jul 8, 2022), only Coca-Cola is up 0.03% while the S&P 500 is down 5.2%. Other companies like C, BAC, CVX and HP lost about 8.7%, 11.2%, 21.2% and 22.6%, respectively.

And finally, Berkshire’s biggest holding is still Apple, making up nearly 41% of its stocks’ portfolio. The stock outperformed the S&P 500 past month and were almost in line with the S&P 500 in the year-to-date and past three-month frame.

ETF Strategies in Focus

Based on the above price performance below we highlight a few ETF investing strategies.

Tap Staples

Coca Cola has been a part and parcel of Buffett’s portfolio for a long time. Coca-Cola’s performance has been the most consistent. After all, this comes from the most stable sector – consumer staples. In times of recession, staples stocks offer the most protection.  Dividend yield of Coke is decent at 2.79%.

Coca-Cola has exposure too iShares Evolved U.S. Consumer Staples ETF (IECS) (12% focus), iShares U.S. Consumer Staples ETF IYK (11.54% focus) and Consumer Staples Select Sector SPDR Fund XLP (10.94% focus).

Buy the Dip in HP-Heavy ETFs?

HP is heavy on American Customer Satisfaction ETF (ACSI) (exposure 3.76%), Invesco Dynamic Market ETF (PWC) (exposure 3.55%) and 3D Printing ETF PRNT (exposure 3.17%). Though HP shares are not resistant to the brad-based tech selloff, the latest rally in tech shares may boost HP shares and the related ETFs. HP yields 3.11% annually.

Bank of America & Citigroup-Heavy ETFs

Though bank stocks suffered a lot, these may be up for a gain on cheap valuation. U.S. financial institutions are trading at bargain-basement prices and continue to present a solid buying opportunity despite near-term market volatility, Oppenheimer said recently as quoted on Barrons.com (read: Time for Bank ETFs on Cheaper Valuation & Decent fundamentals?).

The analyst sees a favorable fundamental trends for the U.S. financial sector over the course of the year, and believes banks could successfully sail through a challenging macroeconomic environment.

Bank of America and Citigroup yield 2.64% and 4.36% annually.  Bank of America has exposure to ETFs like Invesco KBW Bank ETF KBWB (exposure of 7.65%), iShares U.S. Financial Services ETF IYG (exposure of 6.63%) and Financial Select Sector SPDR Fund (XLF) (exposure to 6.29%). Citigroup has focus on KBWB (7.94% exposure), Global Beta Smart Income ETF (GBDV) (exposure 4.52%) and First Trust Nasdaq Bank ETF (FTXO) (exposure 3.92%).

Chevron: Yet Another Dividend King

The stock yields as much as 3.98%. The stock has a Zacks Rank #3 and VGM score of A. Needless to say, the energy stock belongs to an upbeat sector and industry. Energy ETFs like XLE and FENY are heavy on Chevron.

Apple: The Cherry on the Icing

Berkshire’s biggest holding was still Apple, making up nearly 41% of its stocks’ portfolio. In 2017, Buffett said consumers ‘want the product’ despite its prices. This gives Apple the leeway to pass on the rising costs to consumers (which won’t hurt sales) due to sheer brand name.

Plus, Information Technology business normally does not require recurrent capital investments, which makes it an inflation-friendly investment. Even though rising rates are concerns for the tech stocks, Apple is strong enough to weather any rout. Despite a volley of concerns, Apple is still the best-performing FAAMG stock this year.

One can bet on Apple ETFs like Technology Select Sector SPDR Fund XLK, Fidelity MSCI Information Technology Index ETF FTEC and Vanguard Information Technology ETF (VGT).

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Energy Select Sector SPDR ETF (XLE): ETF Research Reports
 
Technology Select Sector SPDR ETF (XLK): ETF Research Reports
 
Consumer Staples Select Sector SPDR ETF (XLP): ETF Research Reports
 
Invesco KBW Bank ETF (KBWB): ETF Research Reports
 
iShares U.S. Financial Services ETF (IYG): ETF Research Reports
 
iShares U.S. Consumer Staples ETF (IYK): ETF Research Reports
 
Fidelity MSCI Energy Index ETF (FENY): ETF Research Reports
 
Fidelity MSCI Information Technology Index ETF (FTEC): ETF Research Reports
 
3DPRINTING ETF (PRNT): ETF Research Reports
 
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