Legendary investor Warren Buffett’s Berkshire Hathaway just gave its blessing to the $4.6 trillion exchange-traded fund market — at least in one of its pension plans.
Berkshire added the Vanguard S&P 500 ETF, ticker VOO, and the 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 in 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 Mr. Buffett’s assistant, Debbie Bosanek.
Mr. 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 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,” Mr. Balchunas said.
In that scenario, ETFs are essentially being used as an alternative for derivatives contracts, Mr. Balchunas said. He estimates that this manner of institutional usage accounts for roughly 5% to 10% of ETF assets.