Warren Buffett’s Outlook for Tech Stocks Remains Bullish
Warren Buffett, CEO of Berkshire Hathaway Inc. (NYSE:BRK.B) is the most revered investor on Wall Street, and quite possibly the greatest investor of all time. This is why investors love to see what’s in Buffett’s portfolio.
And they get a chance to do that every quarter by looking at his company’s 13F filing. Every quarter, companies that have $100.0 million or more in assets under management are legally required to file a 13F form with the U.S. Securities and Exchange Commission (SEC).
It’s normally pretty boring stuff—unless it belongs to Berkshire Hathaway. You get to see what companies Buffett has added and dropped from his portfolio, and whether he increased or decreased any of his previously held positions.
Berkshire Hathaway’s fourth-quarter 2020 13F filing was telling. For the first time ever, the firm added two exchange-traded funds (ETFs) to its portfolio. And they weren’t just any ETFs; they were the two biggest ETFs tracking the S&P 500. (Source: “Form 13F,” U.S. Securities and Exchange Commission, last accessed February 21, 2020.)
One of Buffett’s favorite bits of advice has been to invest in a low-cost S&P 500 index fund. Except the legendary investor had never done that himself—until now.
Warren Buffett Takes New Positions in S&P 500 ETFs
In the fourth quarter of 2020, Berkshire Hathaway took stakes in SPDR S&P 500 ETF Trust (NYSEARCA:SPY) and Vanguard S&P 500 ETF (NYSEARCA:VOO).
Admittedly, Buffett’s positions in those two ETFs were small, relative to the size of his huge portfolio. Still, he added 39,400 shares of SPY, with a value of $12.6 million, and 43,000 shares of VOO, with a value of $12.7 million.
Both ETFs track the performance of the S&P 500, which is made up of stocks of the largest 500 companies that trade on the Nasdaq and NYSE. Tech stocks account for the most holdings in both the Vanguard S&P 500 ETF and the SPDR S&P 500 ETF Trust.
SPY is the largest of the two ETFs, with tech stocks accounting for 20.6% of its holdings. (Source: “SPDR S&P 500 ETF Trust (SPY),” Yahoo! Finance, last accessed February 21, 2020.)
In fact, six of SPDR S&P 500 ETF Trust’s top seven holdings are tech stocks. The top four are: Microsoft Corporation (NASDAQ:MSFT), Apple Inc., (NASDAQ:AAPL), Amazon.com Inc. (NASDAQ:AMZN), and Facebook Inc. (NASDAQ:FB).
They are followed by Berkshire Hathaway in fifth place, Alphabet Inc. Class A (NASDAQ:GOOGL) in sixth place, and Alphabet Inc. Class C (NASDAQ:GOOG) in seventh place.
VOO is similar to SPY in that technology accounts for 20.6% its holdings. Furthermore, both ETFs have the same top seven holdings, although in the case of Vanguard S&P 500 ETF, Berkshire Hathaway is only the seventh-biggest holding. (Source: “Vanguard S&P 500 ETF (VOO),” Yahoo! Finance, last accessed February 21, 2020.)
Why the Newfound Investing Love for S&P 500 ETFs?
Warren Buffett has long praised S&P 500 ETFs because they give investors a position on the entire S&P 500 and, over the long haul, help weather volatility.
He pointed out that the stock market has gone down many times since he bought his first stock in 1942.
“People have panicked during that time. Headlines have been terrible. You know, it looked like we were losing the war when we first got in. But America is a powerful economic machine that, since 1776, it’s worked and it’s gonna keep working.” (Source: “Warren Buffett Explains How You Could’ve Turned $114 Into $400,000 With a Simple Long-Term Investment,” Yahoo! Finance, April 29, 2019.)
Not only does the S&P 500 thrive during times of uncertainty, it also flourishes no matter who occupies the White House.
“The S&P 500 companies have earned well over 10% on equity, often 15% annually for years, and years, and years, and years,” added Buffett.
“They’ve done it— with Democratic administrations, with Republican administrations. Now, you get money compounding at that kind of rate underlying your investment, and you get a diversified group of that, I mean, you’re going to do well.”
The downside to S&P 500 ETFs? They track the index, meaning, you’re not going to make significantly more (or less) than what the S&P 500 does.
At the same time, it allows investors to keep their options open while investing in the broader market. The S&P 500 might advance more than 15% annually, on average, but there are a lot of tech stocks that trounce that percentage.
Warren Buffett made some big investing moves in the fourth quarter of 2020. The most interesting one was his addition of the aforementioned ETFs that track the S&P 500.
This suggests that Buffett remains bullish on tech stocks, since the sector accounts for the most weight in both of the ETFs he added to his portfolio. The tech-heavy Nasdaq may already be trading at record levels, but it appears that Buffett believes it has plenty of room to run.