Which ETF Does Warren Buffett Recommend: Our Breakdown

By 
Eve Halimi

In full, ETF stands for Exchange Traded Fund. First coming into existence in the 1990s, ETFs were primarily developed to help achieve more inclusivity as far as investment in the stock market goes.

This is because mutual funds were fairly difficult for the general public to participate in. Some of the barriers to investing in mutual funds included high capital outlay required as well as illiquidity and sophistication.

Improving access to investing

By developing ETFs, Nate Most made it easier for more people to invest in specific assets in the market without high operational costs. Most importantly, however, is that ETFs offer the benefit of diversification and risk reduction as they allow investors to invest in different securities at the same time.

So which is the best Exchange Traded Fund you can invest in? Well, Warren Buffett— or “The Oracle of Omaha” as he’s popularly referred to— is a major supporter of ETFs. This is because he considers ETFs low-risk investment vehicles that can greatly benefit beginners and fairly risk-averse investors.

As such, having achieved outstanding success in the stock market himself, Mr. Buffett’s opinion definitely counts for something.Below are some of the ETFs thatWarren Buffett recommends:

a)    Video game industry-heavy ETFs

It is popularly said that those who leverage technology hold the keys to the future. And as someone who has perfected the art of predicting long-term gains, Mr. Buffett hasn’t been left behind on this wave. That is why Berkshire Hathaway Inc has acquired a 9.5 stake in the video-game company based ETF; Activision Blizzard Inc ATVI.

This suggests that the video game industry is likely to continue its upward trend. As such, investors can seriously consider a bunch of ETFs in the video game industry and especially Activision-heavy ones. These include Global X VideoGames & Esports ETF HERO, Proshares On-Demand ETF(OND), Invesco Dynamic Software ETF(PSJ), and VanEck Video Gaming and eSports ETF Espo.

b)    Think energy gains

Another set of ETFs that Warren Buffett’s investment choices recommend are those that are based in the energy sector. This is because companies in the sector have witnessed immense growth due to a combination of factors including a rise in the demand of domestic energy production in the wake of theRussian-Ukrainian conflict.

For instance, the oil giant Chevron’s value stood at$25.9 billion by 2022’s first quarter. This value represents a growth from the initial $4.5 billion at the end of 2021. Therefore, investors can bet onChevron-heavy ETFs likeUnited States oil Fund, LP USO, Energy Select Sector SPDR Fund XLE and, VanguardEnergy ETF (VDE).

Another worthy ETF to invest in as far as the energy sector goes is theOccidental-heavy Invesco Dynamic Energy Exploration & Production ETF (PXE).

c)     Banking makes for a good ETF strategy

As it stands, one of the Bank of America’s biggest shareholders happens to be Berkshire Hathaway. Due to its unique business model that insulates against the effects of inflation, American Express is also one of the companies that “The Oracle of Omaha” has considerable interests in.

As such, betting on ETFs in the banking industry and especially for these two entities can be a good decision. Therefore, investors can consider investing in ETFs like Financial Select Sector SPDR Fund (XLF), iShares U.S Financial Services ETF (IYG), and ETFMG Prime Mobile Payments ETF IPAY.

d)    The trillion-dollar Apple basket

Lastly, another bunch of ETFs investors should definitely consider based onWarren Buffett’s ETF choices is Apple-heavy ETFs.One main reason for Mr. Buffett’s continued confidence in Apple—which constitutes Berkshire Hathaway’s largest holding—is the fact that the demand for Apple products is inelastic.

As such, even when economic conditions necessitate an increase in prices, Apple products still maintain high demand and clear off the shelves. Therefore, you should definitely consider investing in Apple-heavy ETFs like Fidelity MSCI Information Technology Index ETF FTEC, Technology Select Sector SPDR Fund XLK, and Vanguard Information Technology ETF (VGT).

A $10 Trillion Dollar Universe

Over 30 years since they were first traded in the markets, ETFs (which you can find on the Alinea app) have continued to prove that they are indeed suitable financial instruments to invest in. This is especially so because ETFs have consistently been better performers than mutual funds in years when general market performance has been poor. Therefore, if you are seeking a low-risk and low-cost diversification strategy, you should definitely consider ETFs or investing playlists (user generated mini baskets of investments similar to ETFs).

Alinea Invest offers thousands of ETFs, check them out by downloading the app today!

 

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