Up 21% Through 2024: Is This Vanguard ETF the Best Way to Invest in Warren Buffett Value Stocks Like Berkshire Hathaway, Coca-Cola, Bank of America, and Chevron?
This has been another great year for the broader stock market indices. And while it’s true that mega-cap growth stocks have led these indexes to new heights, many value stocks are also delivering significant gains.
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Investment management firm Vanguard has a low-cost exchange-traded fund (ETF) that focuses on mega-cap value stocks. It keeps Warren Buffett in charge Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B)as well as Buffett’s top stocks Coca-cola, Bank of AmericaAnd Chevron. This is why the Vanguard Mega Cap Value ETF(NYSEMKT: MGV) could be worth buying now.
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The Vanguard Mega Cap Value ETF is packed with excellent value stocks, many of which pay dividends. However, the fund is highly diversified, which is in stark contrast to Buffett’s strategy of investing heavily in high-conviction ideas.
The five largest investments in the Mega Cap Value ETF represent just 15.5% of the fund, while Buffett’s five largest investments — Apple, American ExpressBank of America, Coca-Cola and Chevron make up 65.6% of Berkshire’s public equity portfolio. The concentration is a bit misleading, however, as Berkshire holds more cash than the full value of its public stock portfolio, and owns companies that are not publicly traded companies, including several insurance companies, retail, manufacturing and service companies, BNSF Railroad, Berkshire Hathaway Energy and more.
ETFs can be an excellent way to gain broad exposure to many different companies. But investors interested in specific stocks may be better off combining an ETF with stock ownership to increase their exposure to their highest-conviction ideas.
For example, Berkshire Hathaway, Bank of America, Chevron and Coke represent 9.6% of the Mega Cap Value ETF. If you wanted to invest, say $1,000 in mega cap value stocks and put about 30% of that into Berkshire’s top value stocks, then a simple approach would be to put $800 into the Mega Cap Value ETF and then put $200 into Berkshire Hathaway. Bank of America, Chevron and Coca Cola.
It would be challenging to invest smaller amounts of money in multiple stocks in recent years due to trading costs and variance in nominal share prices. But in today’s era of no-commission stock trading and fractional shares, it’s relatively easy to invest that much in any company for free with most brokers.
Another way to invest in top Buffett stocks is to simply buy shares of Berkshire Hathaway directly. Berkshire’s market cap at the time of this writing is $1.03 trillion, while its public equity portfolio is valued at $298.2 billion and $325.2 billion in cash and cash equivalents. This means that the rest of the company is actually the most valuable part, at about $403.3 billion. Many of these companies are cash cows with fairly predictable revenue streams and established business models.
However, one downside to Berkshire Hathaway is that it doesn’t pay a dividend, as Buffett prefers to use excess capital to reinvest in the company or buy back Berkshire stock (which has been a winning formula). Therefore, investors looking for a mix of value and income may prefer the Mega Cap Value ETF, which yields 2.3%, or even higher-yielding options like Coca-Cola, which yields 3%. %, or Chevron with a 4% return.
Long-term investing is about identifying high-conviction ideas that you can comfortably put your hard-earned savings into and hold on to over time. When buying individual stocks, it is important to have a clear investment thesis. Berkshire’s stamp of approval for Bank of America, Chevron and Coke may be part of that statement, but it’s important to do additional research on each company to determine what makes it a good buy versus alternatives.
ETFs are inherently more passive instruments than individual companies, but still require an investment thesis. The Mega Cap Value ETF is attractive because it is managed by a reputable investment management firm, has an expense ratio of just 0.07% (which is dirt cheap), is not overly concentrated in the top holdings, and focuses on the largest value stocks — which is a good fit may be for investors who want to avoid high-flying growth stocks.
All in all, investing directly in the best Buffett stock or Berkshire Hathaway stock is the best way to follow in Buffett’s footsteps, but the Mega Cap Value ETF is an excellent tool for set-and-forget investors to putting capital to work without worrying about over-allocation to a handful of stocks.
Consider the following before buying shares in Vanguard World Fund – Vanguard Mega Cap Value ETF:
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Bank of America is an advertising partner of Motley Fool Money. American Express is an advertising partner of Motley Fool Money. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Apple, Bank of America, Berkshire Hathaway and Chevron. The Motley Fool has a disclosure policy.
Up 21% Through 2024: Is This Vanguard ETF the Best Way to Invest in Warren Buffett Value Stocks Like Berkshire Hathaway, Coca-Cola, Bank of America, and Chevron? was originally published by The Motley Fool
