Warren Buffett amassed a huge fortune investing in individual businesses. Sometimes, he led Berkshire Hathaway to acquire businesses outright. Other times, he bought parts of businesses by investing in their stocks.
However, Buffett hasn’t always picked individual businesses in recent years. In 2019, he added exchange-traded funds (ETFs) to Berkshire’s portfolio. That’s proven to be a smart decision, based on the gains those ETFs have delivered since then.
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But the picture could soon change. Buffett owns one Vanguard ETF that could be poised to plunge, according to a top Wall Street analyst.
Buffett hasn’t pressed the “easy button” by investing heavily in ETFs. Nearly all of Berkshire’s $300 billion-plus equity portfolio is still in individual stocks. However, two ETFs remain in the mix.
These ETFs are nearly (although not exactly) identical. Both the SPDR S&P 500 ETF Trust (NYSEMKT: SPY) and the Vanguard S&P 500 ETF (NYSEMKT: VOO) attempt to track the performance of the S&P 500 index (SNPINDEX: ^GSPC).
As you might expect, the portfolios of these two ETFs are nearly identical. The main differences between them are their net asset values (the SPDR ETF is bigger) and their annual expense ratios (the Vanguard ETF is cheaper).
Does Buffett have a favorite between the two? I think so. Berkshire owns a little more of the Vanguard ETF than it does of the SPDR ETF. Also, he expressed a preference for Vanguard S&P 500 funds in his 2013 letter to Berkshire Hathaway shareholders.
Buffett initiated a position in the Vanguard S&P 500 ETF in the fourth quarter of 2019, and its total return since then exceeds 100%. I suspect the legendary investor is pretty happy with that performance. However, he might need to brace himself for giving up some of those gains.
In October, Stifel Chief Equity Strategist Barry Bannister said in an interview with BNN Bloomberg that the S&P 500 will plunge 26% next year. Bannister called the current stock market “effervescent” — a fancy way of saying it’s a bit bubbly. His concerns include valuation and the overall macroeconomic picture.
Stifel isn’t the only Wall Street firm with a negative outlook. Earlier this month, Morgan Stanley Chief Global Economist Seth Carpenter told CNBC’s Sri Jegarajah that President-elect Trump’s proposed across-the-board tariffs could cause a “big negative shock” to the U.S. economy. He argued that the tariffs will drive inflation higher, which will, in turn, weigh on economic growth for the U.S. and its trading partners.
