Zacks Investment Ideas feature highlights: Berkshire Hathaway, Market Vectors Morningstar Wide Moat Research ETF, iShares Dow

Zacks Investment Ideas feature highlights: Berkshire Hathaway, Market Vectors
 Morningstar Wide Moat Research ETF, iShares Dow Jones Transportation Average
                        ETF and SPDR S&P Insurance ETF

PR Newswire

CHICAGO, Nov. 16, 2012

CHICAGO, Nov. 16, 2012 /PRNewswire/ --Today, Zacks Investment Ideas feature
highlights Features: Berkshire Hathaway (BRK.A), Market Vectors Morningstar
Wide Moat Research ETF, (NYSE: MOAT), iShares Dow Jones Transportation Average
ETF (NYSE: IYT) and SPDR S&P Insurance ETF (KIE)



Invest Like Warren Buffett with These ETFs

Warren Buffett is widely regarded as one of the greatest investors of
all-time, and for good reason. The 'Oracle of Omaha' has built up the one time
struggling textile manufacturer of Berkshire Hathaway (BRK.A) into a global
behemoth with investments in a variety of industries and sectors.

Buffett's incredible track record is best demonstrated by the rise of
Berkshire Hathaway's stock price over the years; the security was trading
around $340 in 1980 and is now well over $120,000/share today. Meanwhile,
since mid-1990, an investment in BRK.A would have added about 1700% compared
to an S&P 500 return of roughly 300% in the same time period (read Four ETFs
up More Than 30% YTD).

Clearly, Warren Buffett has been able to perform quite well over a very long
time period, further adding to his mystique and overall legend. This has led
many investors to apply Buffett-like strategies to their own personal
portfolios as well, hoping that the deep value strategies of Buffett would
rub-off on their overall returns.

In order to tap into these techniques, investors can certainly buy up
Berkshire Hathaway shares as a proxy for Buffett's methodology. Yet one has
to wonder if this is still the best strategy, given how large Berkshire has
become. After all, it could be argued that Buffett, thanks to the size of his
firm, can no longer apply his strategies as he once could when Berkshire was
much more nimble.

Warren can now only make large bets in order to truly move the needle, a
situation which has undoubtedly hurt the investor's impressive returns. In
fact, a recent study suggested that in the 00's Buffett didn't add any alpha
at all, a far cry from the nearly 19% alpha that he generated for Berkshire in
1956-1968 and the 'golden age' of Buffett's performance in the 1977-1981
period in which he added nearly 30% a year in excess gains (see Inside The Two
ETFs Up More Than 140% YTD).

Given this trend, investors may be looking for another way to apply
Buffett-like strategies to their portfolios without the clear issues that
Berkshire is facing. Warren is no spring chicken at this point anyway, so why
take on that added risk of his retirement (or worse) when it is very easy to
apply his ideas to the broader stock market without Berkshire's help.

One easy way to do this could be by using a number of specialized ETFs in
order to tap into the heart of Buffett's philosophy. These funds offer up
Buffett-like exposure but at a fraction of the risk and overall cost as
Berkshire, and furthermore, without the overhang of Warren's succession plans
as well.

With this backdrop, any of the following three ETFs could make for excellent
ways to invest like Buffett from a sector perspective. The Oracle has
definitely developed a few favorite industries over the past few decades and
we believe that the funds highlighted below offer excellent targeted exposure
to some of Warren's favorite segments making them great ways for ETF investors
to invest like Warren Buffett:

Wide Moat Investing

Arguably Buffett's most famous investing strategy is to go after so-called
'wide moat' businesses. This type of investing consists of targeting firms
that have easily defendable positions thanks to their inherent businesses,
strategies, or other market factors (see Time to Consider Wide Moat ETFs).

These companies generally have a huge advantage on one of the following five
factors; intangible assets/brands, switching costs, network effects, cost
advantages, or efficient scale. Any of these factors, or even a combination of
them, generally can provide companies with a barrier against others, just like
a moat.

Warren has definitely utilized this in his investing strategy over the years,
targeting extremely wide moat companies for not only outright purchase, but
investment as well.

In order to target a basket of wide moat firms, investors have a few choices
at their disposal although the Market Vectors Morningstar Wide Moat Research
ETF (MOAT)  is arguably the best choice.

This relatively new ETF tracks the Morningstar Wide Moat Focus Index which is
a benchmark of 20 companies that have sustainable competitive advantages.
Furthermore, the index only looks at the most attractively priced ones,
ensuring a focus on deep value securities (read The Wide Moat ETF Explained).

Currently, the basket consists of a number of firms in the tech, materials,
industrials, and financials sectors, with firms that have an advantage on the
cost front comprising much of the portfolio. MOAT also zeroes in on large caps
for the most part—suggesting a low level of volatility—although mid caps also
make up roughly one-fourth of the assets as well.

Volume and AUM are still pretty light for this product, as it is still less
than a year old. Still, the product charges a reasonable 49 basis points a
year in fees and it has handily outperformed the S&P 500 since its inception,
suggesting that there may be something to the strategy in ETF form.

Transportation Stocks

Another wide moat business is that of the transportation sector. Competition
is oligopolistic as barriers to entry are extremely high, both in the general
delivery business and especially in the railroad sector.

After all, the building, buying, and maintenance of a massive railroad empire
isn't something that anyone can start in a short period of time. It is a very
capital intensive endeavor, especially if one is looking to build one that can
traverse across vast distances of the American landscape.

Probably due to this, the railroad industry has always intrigued Buffett as he
was a major investor of Burlington Northern Santa Fe for quite some time, and
he had a modest holding in Union Pacific as well. Then, Warren went 'all in on
the American economy' buying up the rest of BNSF in a $44 billion dollar deal
that cemented Buffett's love of the train industry.

While there isn't a pure railroad ETF at this point in time, investors still
have a popular transport ETF in the form of the iShares Dow Jones
Transportation Average ETF (IYT).

This ETF unsurprisingly tracks the Dow Jones Transportation Average, which is
a broad benchmark of transport stocks based in the U.S. This includes all
types of transportation stocks, including passenger, industrial, and general
transportation service firms (see Is It Time to Buy the Transportation ETFs?).

Currently, the ETF consists of just 21 holdings overall with the biggest chunk
going to railroads at roughly 31% of assets. Additionally it should be noted
that railroads account for three of the top five holdings, including Buffett's
own UNP at the top with 13% of assets.

The ETF isn't much of a yield destination, however, as it has a payout below
1.3%, although its beta is below one, suggesting that it is a lower volatility
choice. Additionally, the product is reasonable from a fee perspective at 47
basis points a year; while volume and assets are relatively high, suggesting
extremely tight bid ask spreads for this popular fund.

Insurance Industry

Another long-time favorite of the Oracle is the insurance industry, the
segment that arguably gave Warren his real start in the investing world. That
is because Warren is attracted to the 'float' that these companies have or the
investable assets that firms have before they have to pay out claims on
various insurance policies.

If these assets can be invested effectively, and if they can be easily paid
out when claims eventually rise, they can be a huge asset for an insurance
company that can greatly expand margins over the long term. Furthermore,
Warren argues that these insurance premiums have a near-zero cost of capital
that allows Warren to make acquisitions and various other investments,
virtually interest-free (see Three Overlooked High Yield ETFs).

These companies currently form the backbone of Berkshire, providing the
company with billions in float. Some of the more famous names in the Berkshire
portfolio include GEICO and General RE, giving the firm exposure to both
general insurance activities and reinsurance as well, both of which provide
incredible amounts of cash premiums.

Obviously, this can be easily replicated by any other insurance company,
suggesting that a broad look at the space, in order to diversify away risk if
there is a catastrophe, could be the way to go. In order to do this, investors
have a few insurance ETFs including the popular SPDR S&P Insurance ETF (KIE).

This ETF tracks the S&P Insurance Select Industry Index, which is a modified
equal-weight benchmark. It includes companies in the American insurance
industry including personal and commercial lines, property/casualty insurance,
life insurance, reinsurance, insurance brokerage and financial guarantee.

With its equal weight methodology, the fund does a great job of spreading
assets around its roughly 46 components, putting no more than 2.7% in any one
security. Still, the product is somewhat concentrated in property and casualty
insurance firms as these companies account for just under 40% of the fund
(read Protect Your Portfolio with These Insurance ETFs).

The fund has a mediocre yield of just 1.7% though, but the P/E is under ten
and the P/B is below 0.9. Investors should also note that the product charges
a reasonable 35 basis points a year in fees, while its AUM and volume—assets
above $110 million—suggest a pretty low bid ask spread.

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