Billionaire investors like Warren Buffett and others are often known for their stock-picking abilities, and for good reason. But it's also important to know that many of the wealthiest investors in the world own exchange-traded funds, or ETFs, as well.
Warren Buffett is no exception, and well-known hedge fund manager Ray Dalio is another example of a multibillionaire who invests in ETFs. With that in mind, here are four ETFs they own, some basic information about them, and why they could be smart additions to your portfolio, even if your main focus is individual stocks.
Buffett's favorite ETFs
Berkshire Hathaway's (NYSE: BRK.A)(NYSE: BRK.B) massive stock portfolio is known for its stakes in companies like Apple and Bank of America. However, it's also important to point out that the Warren Buffett-led investment portfolio has positions in two ETFs.
Berkshire's portfolio includes two ETFs that are S&P 500 index funds: the Vanguard S&P 500 ETF (NYSEMKT: VOO) and the SPDR S&P 500 ETF Trust(NYSEMKT: SPY). In a nutshell, these are low-cost index funds that invest in the 500 companies that make up the popular benchmark index, aiming to replicate its performance over time. While both are extremely cheap, the expense ratios for the Vanguard and SPDR ETFs are 0.03% and 0.09%, respectively.
Warren Buffett has called investing in the S&P 500 a bet on American business and has also referred to low-cost index fund investing as the best way to invest for the majority of U.S. investors. As Buffett said in one of his letters to shareholders, "American business -- and consequently a basket of stocks -- is virtually certain to be worth far more in the years ahead."
While the performance of the S&P 500 will fluctuate widely from year to year, it's a surprisingly consistent wealth creator over the long term. Since 1965, the S&P 500 has produced average total returns of 10.2% through the end of 2023. Returns like these can help you create serious wealth over time.
A major hedge fund has nearly $2 billion in these ETFs
Bridgewater Associates is the world's largest hedge fund, and its high-profile manager Ray Dalio founded the firm in the 1970s. (He recently stepped down from his active role.)
One of the wealthiest people in the world, Dalio built his reputation for his investment strategies in currency and fixed-income markets, especially when it comes to delivering strong performance even in tough times. For example, Dalio was one of the few fund managers who generated positive returns in the 2008 financial crisis.
Today, Bridgewater has roughly $150 billion in assets under management, with only about $18 billion invested in publicly traded securities. While Bridgewater has significant holdings in companies like Procter & Gamble and Coca-Cola, you might be surprised to learn that the hedge fund's two largest stock-based investments are ETFs.
As of the latest information, Bridgewater owns about $1 billion worth of iShares Core S&P 500 ETF(NYSEMKT: IVV) and another $950 million worth of iShares Core MSCI Emerging Markets ETF(NYSEMKT: IEMG). The first one is just like the two Buffett-owned S&P 500 ETFs and is just another low-cost way to invest in American business.
The iShares Core MSCI Emerging Markets ETF tracks an index of large- and mid-cap companies based in emerging markets like China, India, Taiwan, Korea, and Brazil. It owns about 1,200 different stocks and is a weighted index, with larger holdings that include Taiwan Semiconductor, Samsung, Tencent Holdings, and Alibaba Group, just to name a few.
In a nutshell, this ETF is designed to give you exposure to economies with lots of growth potential without the research and company-specific risk involved with choosing individual stocks.
The bottom line is that even billionaires recognize the wealth-creation potential of low-cost index funds. Even if you're an active investor in individual stocks -- like Buffett and Dalio are -- rock-solid index funds like these four can help form an excellent backbone for your portfolio.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Matt Frankel has positions in Bank of America, Berkshire Hathaway, and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Apple, Bank of America, Berkshire Hathaway, Taiwan Semiconductor Manufacturing, Tencent, and Vanguard S&P 500 ETF. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
