Self Directed Investor Inc
SDI: "Empowering investors with ideas and education"
Symbol Lookup »  
Topics:ChinaETFsEarningsEconomyEnergyForexGoldIncomeLessonsIdeasTrading

  • Other news: News from PR Newswire
| More

S&P 500 ETFs Prepare For Berkshire Addition

Wed, Jan 27, 12:56 PM ET, by Michael Johnston

Coming soon to an ETF near you: Warren Buffett. Well not exactly, but shares of Berkshire Hathaway, the company run by the “Oracle of Omaha” will soon be included in the S&P 500 Index and find a home in many of the most popular large-cap and all-cap ETFs.

Back Story

Berkshire is one of the largest U.S.-listed public companies (it claimed the 13th spot in the 2009 version of the Fortune 500), but has long been excluded from the S&P 500 due to concerns about the stock’s liquidity. Berkshire has never recorded a stock split, causing the company’s stock price to climb by consistently generating profits. Shares of Berkshire crossed $100,000 for the first time in late 2006 and climbed as high as $150,000 in December 2007. Average daily volume for Berkshire’s A stock (BRKA) is only about 1,000 shares. Berkshire management has cited its desire to attract long-term investors in favor of short-term speculators as reasoning for refusing to split shares.

But when unit trusts investing in Berkshire stock began to pop up, Buffett relented by creating class B shares that had a per-share value kept close to 1/30th of the class A shares with 1/200th of the per-share voting rights. With a per-share value above $3,000, trading in these shares was still on the light side, with three to five million shares changing hands daily (compared to 75 million for GE and 25 million for Exxon).

Last week, Berkshire conducted a 50-for-one stock split of its class B shares, sending the price to around $70 per share and trading volumes through the roof. Late Tuesday, Standard & Poor’s announced that it would finally add Berkshire to the S&P 500 Index. Berkshire shares surged on the news, as investors anticipated a rush of buying from index funds and ETFs.

Big Boost

Berkshire's Move Could Shake Up ETFsThe addition of a company to a widely-followed index has historically given shares a boost, but this impact has been magnified significantly in recent years with the rise in popularity of passively-indexed ETFs that generally strive to track the movements of an underlying index within a few basis points.

But Berkshire is a special case. The addition of a company to the S&P 500 generally coincides with its removal from benchmarks measuring the performance of smaller stocks (e.g. the S&P MidCap 400). The net effect of this upgrade is generally a positive one (since the S&P 500 is a more widely-tracked benchmark than its mid-cap counterpart), but any surge in demand is partially offset by sales from other funds.

But instead of shifting from fourth gear to fifth, Berkshire is essentially going from zero to sixty. Currently not included in any major benchmarks, the stock will soon be one of the largest components of one of the most widely-followed index in the world. By many estimates, Berkshire could make up about 1.1% of the S&P 500 (Buffett’s personal holdings significantly reduce the public float used to determine S&P weightings). The S&P 500 SPDR (SPY) and iShares S&P 500 Index Fund (IVV) have aggregate assets of over $100 billion, meaning that ETFs alone will be buying more than $1 billion in Berkshire stock. Between broad market funds, mega-cap ETFs, value spin-offs, and various fundamentally-weighted alternatives to the S&P 500, several funds are facing some significant rebalancing acts in coming months.

Index reconstitution can have some interesting effects. Last year, Israeli equity markets actually fell following an announcement from MSCI that the country had been upgraded to “developed” status. While the upgrade reflected improvements in the quality of Israel’s capital markets and was an endorsement of local markets to international investors, it also meant the eventual sale of all stocks listed in Israel from several widely-held emerging markets mutual funds, index funds, and ETFs. Although this effect was offset somewhat by the inclusion of Israel in developed market indexes, the economy’s size relative to the U.S., Japan, and other developed markets translated into a minor allocation in funds.

Tracking Error Watch

Rebalancing is a regular part of ETF management, but most reconstitution efforts are significantly smaller in scale than the challenge facing several ETFs that must now add Berkshire to their holdings. With this undertaking, the potential for tracking error in these funds increases considerable. The S&P 500 is a hypothetical basket of stocks, meaning that the index committee can reconstitute the benchmark with the flip of a switch and without incurring transaction costs. But ETFs like IVV and SPY must actually go out into the market and complete trades to achieve the desired find composition. For ETFs with hundreds of holdings, the impact on bottom line returns is generally minimal, but the Berkshire rebalancings promise to be unlike any before.

For updates on which ETFs handle the addition of Berkshire most efficiently, sign up for our free ETF newsletter.

Disclosure: No positions at time of writing.


SDI Glossary: "price" Definition
SDI Glossary: "ETFs" Definition
SDI Glossary: "iShares" Definition
This Article's Word Cloud:   Berkshire   Buffett   ETFs   Index   Israel   about   addition   been   class   company   developed   facing   from   funds   generally   holdings   index   into   investors   largest   listed   many   market   markets   million   most   must   other   price   public   reconstitution   several   share   shares   significantly   soon   split   stock   stocks   term   than   that   these   this   time   upgrade   value   widely   will   with

| More

Edwards Lifesciences Achieves #82 Analyst Rank, Surpassing Western Digital
Fri, May 26, 11:54 AM ET, by ETF Channel

In a study of analyst recommendations at the major brokerages, for the underlying components of ...

ProShares Short VIX Short-Term Futures ETF Experiences Big Inflow
Fri, May 26, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: SVXY Exchange traded funds (ETFs) trade just like stocks, but ...

FDD: Large Inflows Detected at ETF
Fri, May 26, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: FDD Exchange traded funds (ETFs) trade just like stocks, but ...

SPXL: Large Outflows Detected at ETF
Fri, May 26, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: SPXL Exchange traded funds (ETFs) trade just like stocks, but ...

SDY, TGT, O, ORI: ETF Outflow Alert
Fri, May 26, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: SDY, TGT, O, ORI Exchange traded funds (ETFs) trade just ...

SPY, GS, NVDA, TWX: Large Outflows Detected at ETF
Fri, May 26, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: SPY, GS, NVDA, TWX Exchange traded funds (ETFs) trade just ...

13.6% of DIV Holdings Seeing Recent Insider Buys
Fri, May 26, 9:54 AM ET, by ETF Channel

A look at the weighted underlying holdings of the SuperDividend U.S. ETF (DIV) shows an ...

MuleSoft Reaches Analyst Target Price
Fri, May 26, 9:14 AM ET, by ETF Channel

In recent trading, shares of MuleSoft Inc (MULE) have crossed above the average analyst 12-month ...

PAYX Crosses Above Average Analyst Target
Fri, May 26, 9:14 AM ET, by ETF Channel

In recent trading, shares of Paychex Inc (PAYX) have crossed above the average analyst 12-month ...

The FOSL Paradox: Analysts Bearish But Forecast 35.71% Gains
Fri, May 26, 9:14 AM ET, by ETF Channel

Analyst ratings can sometimes be complicated, and we here at ETF Channel have noticed a ...

Strange: Bullish MTSI Analysts Actually See -2.95% Downside
Fri, May 26, 9:14 AM ET, by ETF Channel

Analyst ratings can sometimes be complicated, and we here at ETF Channel have noticed a ...

NATI Crosses Above Average Analyst Target
Fri, May 26, 9:14 AM ET, by ETF Channel

In recent trading, shares of National Instruments Corp. (NATI) have crossed above the average analyst ...

Conmed Reaches Analyst Target Price
Fri, May 26, 9:14 AM ET, by ETF Channel

In recent trading, shares of Conmed Corp. (CNMD) have crossed above the average analyst 12-month ...

Sysco a Top Socially Responsible Dividend Stock With 2.4% Yield (SYY)
Fri, May 26, 8:14 AM ET, by ETF Channel

Sysco Corp (SYY) has been named a Top Socially Responsible Dividend Stock by Dividend Channel, ...

XES Crosses Critical Technical Indicator
Thu, May 25, 3:54 PM ET, by ETF Channel

In trading on Thursday, shares of the SPDR S&P Oil & Gas Equipment & Services ...

Shares of IEZ Now Oversold
Thu, May 25, 3:54 PM ET, by ETF Channel

In trading on Thursday, shares of the iShares U.S. Oil Equipment & Services ETF (IEZ) ...

First Trust Latin America AlphaDEX Fund Experiences Big Outflow
Thu, May 25, 11:24 AM ET, by ETF Channel

Symbols mentioned in this story: FLN Exchange traded funds (ETFs) trade just like stocks, but ...

QID Crosses Critical Technical Indicator
Thu, May 25, 11:24 AM ET, by ETF Channel

In trading on Thursday, shares of the ProShares UltraShort QQQ ETF (QID) entered into oversold ...

VBR, CDW, TFX, STLD: Large Outflows Detected at ETF
Thu, May 25, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: VBR, CDW, TFX, STLD Exchange traded funds (ETFs) trade just ...

PNQI, EBAY, TWTR, MELI: Large Inflows Detected at ETF
Thu, May 25, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: PNQI, EBAY, TWTR, MELI Exchange traded funds (ETFs) trade just ...

AGG: Large Inflows Detected at ETF
Thu, May 25, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: AGG Exchange traded funds (ETFs) trade just like stocks, but ...

14.6% of VOO Holdings Seeing Recent Insider Buys
Thu, May 25, 9:34 AM ET, by ETF Channel

A look at the weighted underlying holdings of the Vanguard S&P 500 ETF (VOO) shows ...

Add Up The Parts: IGE Could Be Worth $40
Thu, May 25, 9:24 AM ET, by ETF Channel

Looking at the underlying holdings of the ETFs in our coverage universe at ETF Channel, ...

TKR Crosses Above Average Analyst Target
Thu, May 25, 9:24 AM ET, by ETF Channel

In recent trading, shares of Timken Co. (TKR) have crossed above the average analyst 12-month ...

Zoetis Reaches Analyst Target Price
Thu, May 25, 9:24 AM ET, by ETF Channel

In recent trading, shares of Zoetis Inc (ZTS) have crossed above the average analyst 12-month ...

Sotheby's Reaches Analyst Target Price
Thu, May 25, 9:14 AM ET, by ETF Channel

In recent trading, shares of Sotheby's (BID) have crossed above the average analyst 12-month target ...

RYN Crosses Above Average Analyst Target
Thu, May 25, 9:14 AM ET, by ETF Channel

In recent trading, shares of Rayonier Inc. (RYN) have crossed above the average analyst 12-month ...

Fomento Economico Mexicano Reaches Analyst Target Price
Thu, May 25, 9:14 AM ET, by ETF Channel

In recent trading, shares of Fomento Economico Mexicano, S.A.B. de C.V. ...

Triumph Group Reaches Analyst Target Price
Thu, May 25, 9:14 AM ET, by ETF Channel

In recent trading, shares of Triumph Group Inc. (TGI) have crossed above the average analyst ...

STAG Industrial Reaches Analyst Target Price
Thu, May 25, 9:14 AM ET, by ETF Channel

In recent trading, shares of STAG Industrial Inc (STAG) have crossed above the average analyst ...

KTOS Crosses Above Average Analyst Target
Thu, May 25, 9:14 AM ET, by ETF Channel

In recent trading, shares of Kratos Defense & Security Solutions, Inc. (KTOS) have crossed above ...

WEC Energy Group Reaches Analyst Target Price
Thu, May 25, 9:14 AM ET, by ETF Channel

In recent trading, shares of WEC Energy Group Inc (WEC) have crossed above the average ...

Xylem Takes Over #110 Spot From Exelon
Wed, May 24, 11:54 AM ET, by ETF Channel

In a study of analyst recommendations at the major brokerages, for the underlying components of ...

See How General Electric Ranks Among Analysts' Top Dow 30 Picks
Wed, May 24, 11:54 AM ET, by ETF Channel

A study of analyst recommendations at the major brokerages shows that General Electric Co (GE) ...

XOP, RICE, EGN, CPE: Large Outflows Detected at ETF
Wed, May 24, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: XOP, RICE, EGN, CPE Exchange traded funds (ETFs) trade just ...

iShares Russell 1000 Value ETF Experiences Big Inflow
Wed, May 24, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: IWD, DOW, QCOM, AIG Exchange traded funds (ETFs) trade just ...

IYT, FDX, NSC, JBHT: ETF Inflow Alert
Wed, May 24, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: IYT, FDX, NSC, JBHT Exchange traded funds (ETFs) trade just ...

iShares Russell 3000 ETF Experiences Big Inflow
Wed, May 24, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: IWV, UTX, BMY, GILD Exchange traded funds (ETFs) trade just ...

XLB, DD, MON, SHW: Large Outflows Detected at ETF
Wed, May 24, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: XLB, DD, MON, SHW Exchange traded funds (ETFs) trade just ...

12.7% of VFH Holdings Seeing Recent Insider Buys
Wed, May 24, 9:44 AM ET, by ETF Channel

A look at the weighted underlying holdings of the Vanguard Financials ETF (VFH) shows an ...

10.8% of VO Holdings Seeing Recent Insider Buys
Wed, May 24, 9:44 AM ET, by ETF Channel

A look at the weighted underlying holdings of the Vanguard Mid-Cap ETF (VO) shows an ...

11.1% of VTV Holdings Seeing Recent Insider Buys
Wed, May 24, 9:44 AM ET, by ETF Channel

A look at the weighted underlying holdings of the Vanguard Value ETF (VTV) shows an ...

CMS Crosses Above Average Analyst Target
Wed, May 24, 9:14 AM ET, by ETF Channel

In recent trading, shares of CMS Energy Corp (CMS) have crossed above the average analyst ...

NBHC Crosses Above Average Analyst Target
Wed, May 24, 9:14 AM ET, by ETF Channel

In recent trading, shares of National Bank Holdings Corp (NBHC) have crossed above the average ...

CQH Crosses Above Average Analyst Target
Wed, May 24, 9:14 AM ET, by ETF Channel

In recent trading, shares of Cheniere Energy Partners LP Holdings LLC (CQH) have crossed above ...

Prospect Capital Reaches Analyst Target Price
Wed, May 24, 9:14 AM ET, by ETF Channel

In recent trading, shares of Prospect Capital Corporation (PSEC) have crossed above the average analyst ...

VDE's Holdings Could Mean 21% Gain Potential
Wed, May 24, 9:14 AM ET, by ETF Channel

Looking at the underlying holdings of the ETFs in our coverage universe at ETF Channel, ...

BG Crosses Above Average Analyst Target
Wed, May 24, 9:14 AM ET, by ETF Channel

In recent trading, shares of Bunge Ltd. (BG) have crossed above the average analyst 12-month ...

PUW's Holdings Could Mean 19% Gain Potential
Wed, May 24, 9:14 AM ET, by ETF Channel

Looking at the underlying holdings of the ETFs in our coverage universe at ETF Channel, ...

XME Makes Bullish Cross Above Critical Moving Average
Tue, May 23, 4:24 PM ET, by ETF Channel

In trading on Tuesday, shares of the SPDR S&P Metals & Mining ETF (XME) crossed ...

  More articles:  1 2 3 4 5 6 7 next »

ABOUT US »   ADVERTISE »   CONTACT US »   TERMS OF USE & PRIVACY POLICY »

S&P 500 ETFs Prepare For Berkshire Addition | Self Directed Investor | Copyright © 2008 - 2017, All Rights Reserved

Any ideas and opinions presented in Self Directed Investor content are for informational and educational purposes only, and do not reflect the opinions of BNK Invest, Inc. or any of its affiliates, subsidiaries or partners. In no way should any content contained herein be interpreted to represent trading or investment advice. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. All site visitors agree that under no circumstances will BNK Invest, Inc,. its subsidiaries, partners, officers, employees, affiliates, or agents be held liable for any loss or damage caused by your reliance on information obtained. Read Full Disclaimer.

SDI is associated with: ValueForum.com -- a subscription-based online social networking forum of serious individual investors. | MarketNewsVideo.com -- videos appearing on SDI are produced by Market News Video. | TickerTech.com -- stock quote content appearing on SDI is at least 20 minutes delayed and is powered by Ticker Technologies. | GoldStockStrategist.com -- Edited by Scott V. Nystrom, PhD, Gold Stock Strategist provides analysis on gold mining companies.