There are at least a couple of things about Warren Buffett’s investments that many people don’t know. For one, not all of the stocks he owns show up in Berkshire Hathaway‘s (NYSE: BRK.A) (NYSE: BRK.B) regulatory filings. Buffett has what you might call a “secret portfolio”: the stocks held by Berkshire’s subsidiary, New England Asset Management (NEAM).
Another thing that some might not know about Buffett is that he doesn’t invest only in stocks. Both Berkshire and NEAM also own some exchange-traded funds (ETFs). In fact, in the fourth quarter of 2022, NEAM found several ETFs especially attractive. Buffett’s “secret portfolio” just loaded up on these five ETFs. Should you do the same?
The favorite five
NEAM actually bought shares of 12 ETFs during the fourth quarter of 2022. But the Berkshire subsidiary increased its stake in five ETFs by double-digit percentages during the period.
Vanguard High Dividend Yield ETF (NYSEMKT: VYM) stands at the top of the list. As its name indicates, this fund focuses on stocks with relatively high dividend yields. NEAM more than doubled its position in VYM during Q4.
Buffett’s secret portfolio wasn’t just looking for stocks with high yields. NEAM also increased its position in iShares Broad USD High Yield Corporate Bond ETF (NYSEMKT: USHY) by 88% in the fourth quarter of 2022. This ETF currently owns 1,942 bonds with an average 30-day SEC yield of 8.29%.
NEAM appeared to be bullish about the prospects for small-cap stocks as well. The investment firm upped its stake in iShares Russell 2000 ETF (NYSEMKT: IWM) by 64% in Q4. This ETF currently owns 1,938 small-cap stocks.
However, Berkshire’s subsidiary wasn’t only thinking small. It also increased its holding of iShares Core S&P 500 ETF (NYSEMKT: IVV) by 33% in Q4. As you can probably determine from its name, the ETF owns large-cap stocks that are included in the S&P 500.
The fifth ETF on the list of NEAM’s big buys in Q4 is iShares Preferred & Income Securities ETF (NASDAQ: PFF). Buffett’s secret portfolio added 20% more shares of this ETF. It has exposure to preferred stocks, which are similar to bonds in that they pay fixed dividends. The average 30-day SEC yield for the ETF is 5.92%.
Why these ETFs?
One pattern clearly emerges from NEAM’s Q4 purchases: The investment firm was eager to scoop up income-producing ETFs. Those huge additions to VYM, USHY, and PFF prove it.
If we expanded our horizon to also include individual stocks that NEAM bought in Q4, there’s even more reason to believe that the firm wanted to boost its income. Several of the biggest purchases NEAM made in Q4 were dividend stocks, including two of the three new positions initiated by the firm.
However, the Berkshire subsidiary also appeared to want to bet on the broader market. The big buys of IWM and IVV back up this argument.
There’s more to the story in this case, too. In addition to buying IWM and IVV, NEAM purchased more shares of two similar ETFs in Q4 — Vanguard Small-Cap Index Fund and SPDR S&P 500 ETF Trust.
Should you buy them, too?
Your investing goals will almost certainly be different than those of NEAM. It isn’t wise to buy these ETFs simply because an investment firm closely connected with Buffett has done so.
That being said, though, the ETFs purchased by NEAM in Q4 could be attractive to many investors. Retirees, for example, will probably find a lot to like about VYM, USHY, and PFF. All three generate solid income and offer diversification across a large number of stocks or bonds.
Pretty much any investor could benefit by owning IWM and/or IVV. Small-cap stocks like those owned by IWM tend to deliver exceptional returns over the long term. For that matter, so do large-cap stocks in the S&P 500. If you don’t want to spend the time to research individual stocks, these two ETFs could be smart choices for long-term investors.
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Keith Speights has positions in Berkshire Hathaway and iShares Trust-iShares Russell 2000 ETF. The Motley Fool has positions in and recommends Berkshire Hathaway, Vanguard Index Funds-Vanguard Small-Cap ETF, and Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF. The Motley Fool has a disclosure policy.