Exchange-traded funds and mutual funds that track the S&P 500 have been the bedrock of countless portfolios. These investment vehicles allow buyers to maximize the historical returns of the U.S. stock market and tether themselves to economic growth.
The benchmark index includes the top 500 stocks in America by market capitalization, but it isn’t equally weighted. Microsoft currently holds the top spot in the S&P 500, though it has been recently challenged by artificial intelligence rival Nvidia.
The focus on American large-cap companies means the S&P 500 has a heavy tech concentration; around 30% of the index is composed of tech stocks. Only two of the benchmark’s top 10 holdings are non-tech stocks, one of which is healthcare giant Eli Lilly. The other is Warren Buffett’s financial services firm, Berkshire Hathaway (NYSE: BRK.B).
Buffett, the investing magnate who famously transformed Berskhire from an ailing textile mill into one of the world’s most successful investment firms, has been at the helm for years and since 1996 overseen a 1,591% gain in them, trouncing the S&P 500’s 650% return over the same time period.
Why Did Berkshire Hathaway Stock Go Up?
That trend has continued, as Berkshire slightly outperformed the index over the past five years. But the S&P 500’s tech focus drove the index past Berkshire over the 12 months, with 28.9% gains compared to Berkshire’s 23.9% one-year return.
While there are marked differences between Berkshire stock and an S&P 500 ETF, both investments give buyers immediate diversification.
Berkshire’s main source of income is capital gains from its massive investment portfolio, so buying a share of BRK.B is like buying a share in over 40 companies at once.
It also means Berkshire’s quarterly net income varies widely depending on the market. In the first quarter of fiscal year 2024, Berkshire had net income of $12.7 billion, which was over 64% lower than the same quarter of 2023.
While that might alarm some investors used to more typical earnings releases, Buffett has insisted Berkshire shouldn’t be viewed as a typical company.
The “Oracle of Omaha” says his firm is a long-term play and Berkshire has three main goals: driving operating earnings, decreasing outstanding shares, and investing wisely.
Operating earnings provide a fuller picture of the company’s results, according to Buffett, because it mutes the effects of market volatility. Through that lens, Berkshire had a successful first quarter, as operating earnings jumped 39% year-over-year.
Buffett has said Berkshire will repurchases shares when certain key valuation criteria are met. In Q1, Berkshire Hathaway repurchased nearly $2.6 billion in stock using one of its most powerful attributes: its cash.
The company’s cash and cash equivalents reached almost $189 billion in the first quarter. With that amount of cash, Berkshire can make a significant investing move at a moment’s notice. Unfortunately, Buffett hasn’t found a stock that is worthy of a large-scale investment of late.
Will Berkshire Hathaway Keep Going Up?
It was a solid quarter by Buffett’s standards, and investors mostly agreed. Still, Buffett raised eyebrows on Berkshire’s future in his annual shareholder letter where he said the firm would only do slightly better than the average company going forward.
Buffett made that prediction because of the firm’s size, which doesn’t allow for the explosive growth it achieved in the past. The Oracle of Omaha also said the lack of quality investment opportunities is affecting Berkshire’s bottom line.
However, Buffett has continued to buy Occidental Petroleum. In fact, Buffett bought the stock for nine straight days in June, and Berkshire now has a 29% stake in the oil and gas producer.
That might mystify investors who aren’t impressed by Occidental’s 5.3% year-to-date return and 1.39% annual dividend yield. But Buffett’s long-term mindset has led many experts to speculate the Occidental buy could be a play on a future oil and gas surge.
What Is In Berkshire Hathaway’s Portfolio?
Though Berkshire has a significant stake in Occidental, the petroleum stock only amounts to 4.6% of Berkshire’s $331 billion portfolio. Buffett’s top holding is Apple, which accounts for 50.1% of the firm’s portfolio.
That concentration on the iPhone maker has weighed Berkshire down, but Buffett insists Apple is a well-run company with a strong moat and an established brand. It’s noteworthy that Buffett sold $20 billion of Apple stock in Q1 as the tech giant’s iPhone sales slumped.
Bank of America and American Express each account for over 10% of Berkshire’s portfolio. After those stocks is long-time Buffett favorite Coca-Cola, which makes up 7.38% of the portfolio. Chevron rounds out the firm’s top five holdings.
How Does Berkshire Hathaway Stock Differ From The S&P 500?
The S&P 500 consists of the top 500 U.S. stocks, but the index is ever-changing as the market cap of its constituents shifts.
Berkshire Hathaway, on the other hand, consists of a hand-picked selection of wide-moat companies, that happen to have been chosen by one of the best investors of all time.
There is more to Berkshire than stocks, however, as Buffett has hedged market volatility by acquiring select companies.
Berkshire Hathaway owns the GEICO insurance company, the Burlington Santa Fe Railroad, and the Berkshire Hathaway Energy Company, among other ventures.
Famously, his insurance business is the cash cow that permits investment in a host of other businesses.
Is Berkshire Hathaway Better Than The S&P 500?
Berkshire Hathaway has historically been a better bet than the S&P 500, generating an annualized return of approximately 20% versus 10% for the ETF.
The combination of Buffett-picked stocks and wholly-owned subsidiaries makes Berkshire Hathaway an intriguing investment. While Buffett has been known to invest in dividend stocks, Berkshire stock doesn’t pay a dividend.
S&P 500 ETFs, on the other hand, do pass on dividends to their shareholders. That allows investors to reinvest dividends and passively keep their investment growing. The main concern with the S&P 500 is its tech concentration could backfire, as evidenced by the index’s 2022 dip after tech stocks struggled.
While Berkshire has handily outperformed the S&P 500 since 1996, it’s not a foregone conclusion the trend will continue. However, if there is an AI bubble, as many experts have predicted, and tech stocks like Nvidia and Microsoft come back to earth, Berkshire could be set to outperform the S&P 500 again.
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