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

Capital One Financial Corp Achieves #94 Analyst Rank, Surpassing Electronic Arts
Thu, Sep 3, 11:54 AM ET, by ETF Channel

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

MDY, CHD, ALK, JAH: Large Outflows Detected at ETF
Thu, Sep 3, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: MDY, CHD, ALK, JAH Exchange traded funds (ETFs) trade just ...

IWB, PG, PM, UNH: Large Outflows Detected at ETF
Thu, Sep 3, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: IWB, PG, PM, UNH Exchange traded funds (ETFs) trade just ...

IVE, XOM, CVX, WMT: Large Inflows Detected at ETF
Thu, Sep 3, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: IVE, XOM, CVX, WMT Exchange traded funds (ETFs) trade just ...

IWF, DIS, KO, CVS: Large Outflows Detected at ETF
Thu, Sep 3, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: IWF, DIS, KO, CVS Exchange traded funds (ETFs) trade just ...

XLF, COF, BLK, PRU: ETF Inflow Alert
Thu, Sep 3, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: XLF, COF, BLK, PRU Exchange traded funds (ETFs) trade just ...

PKW, FOXA, ORLY, DG: Large Outflows Detected at ETF
Thu, Sep 3, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: PKW, FOXA, ORLY, DG Exchange traded funds (ETFs) trade just ...

FXD, SKX, CVC, FL: Large Outflows Detected at ETF
Thu, Sep 3, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: FXD, SKX, CVC, FL Exchange traded funds (ETFs) trade just ...

FXO, VNTV, PRE, TSS: Large Outflows Detected at ETF
Thu, Sep 3, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: FXO, VNTV, PRE, TSS Exchange traded funds (ETFs) trade just ...

IWR, CCI, AON, MHFI: Large Inflows Detected at ETF
Wed, Sep 2, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: IWR, CCI, AON, MHFI Exchange traded funds (ETFs) trade just ...

DXJ: ETF Outflow Alert
Wed, Sep 2, 11:14 AM ET, by ETF Channel

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

TZA: ETF Outflow Alert
Wed, Sep 2, 11:14 AM ET, by ETF Channel

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

XLI, BA, HON, UNP: ETF Outflow Alert
Wed, Sep 2, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: XLI, BA, HON, UNP Exchange traded funds (ETFs) trade just ...

CIU: Large Outflows Detected at ETF
Wed, Sep 2, 11:14 AM ET, by ETF Channel

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

Why AFLAC is a Top Socially Responsible Dividend Stock (AFL)
Wed, Sep 2, 8:24 AM ET, by ETF Channel

AFLAC Inc. (AFL) has been named a Top Socially Responsible Dividend Stock by Dividend Channel, ...

GXC Crosses Critical Technical Indicator
Tue, Sep 1, 3:54 PM ET, by ETF Channel

In trading on Tuesday, shares of the SPDR S&P China ETF (GXC) entered into oversold ...

Shares of FXI Now Oversold
Tue, Sep 1, 3:54 PM ET, by ETF Channel

In trading on Tuesday, shares of the iShares China Large-Cap ETF (FXI) entered into oversold ...

International SmallCap Values (DLS) Enters Oversold Territory
Tue, Sep 1, 3:54 PM ET, by ETF Channel

In trading on Tuesday, shares of the International SmallCap Values ETF (DLS) entered into oversold ...

Raytheon Takes Over #91 Spot From Stericycle
Tue, Sep 1, 11:54 AM ET, by ETF Channel

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

Shares of VGK Now Oversold
Tue, Sep 1, 11:14 AM ET, by ETF Channel

In trading on Tuesday, shares of the Vanguard FTSE Europe ETF (VGK) entered into oversold ...

IEV Crosses Critical Technical Indicator
Tue, Sep 1, 11:14 AM ET, by ETF Channel

In trading on Tuesday, shares of the iShares Europe ETF (IEV) entered into oversold territory, ...

Shares of IEUR Now Oversold
Tue, Sep 1, 11:14 AM ET, by ETF Channel

In trading on Tuesday, shares of the iShares Core MSCI Europe ETF (IEUR) entered into ...

EWU Crosses Critical Technical Indicator
Tue, Sep 1, 11:14 AM ET, by ETF Channel

In trading on Tuesday, shares of the iShares MSCI United Kingdom ETF (EWU) entered into ...

KRE, NPBC, GWB, STL: Large Outflows Detected at ETF
Tue, Sep 1, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: KRE, NPBC, GWB, STL Exchange traded funds (ETFs) trade just ...

EMLC Crosses Critical Technical Indicator
Tue, Sep 1, 11:14 AM ET, by ETF Channel

In trading on Tuesday, shares of the Emerging Markets Local Currency Bond ETF (EMLC) entered ...

10.5% of XLG Holdings Seeing Recent Insider Buys
Tue, Sep 1, 9:44 AM ET, by ETF Channel

A look at the weighted underlying holdings of the Guggenheim Russell Top 50 Mega Cap ...

ProShares Ultra 7-10 Year Treasury (UST) Shares Cross Below 200 DMA
Mon, Aug 31, 3:54 PM ET, by ETF Channel

In trading on Monday, shares of the ProShares Ultra 7-10 Year Treasury ETF (UST) crossed ...

Interpublic Group of Companies Takes Over #86 Spot From Navient
Mon, Aug 31, 11:54 AM ET, by ETF Channel

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

iShares J.P. Morgan USD Emerging Markets Bond ETF Experiences Big Outflow
Mon, Aug 31, 11:14 AM ET, by ETF Channel

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

EWZ: ETF Outflow Alert
Mon, Aug 31, 11:14 AM ET, by ETF Channel

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

IWN, ISBC, BEE, HIW: ETF Inflow Alert
Mon, Aug 31, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: IWN, ISBC, BEE, HIW Exchange traded funds (ETFs) trade just ...

VPU, NEP, UTL, CTWS: Large Outflows Detected at ETF
Mon, Aug 31, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: VPU, NEP, UTL, CTWS Exchange traded funds (ETFs) trade just ...

St Jude Medical Takes Over #112 Spot From EQT
Fri, Aug 28, 11:54 AM ET, by ETF Channel

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

DVY, CME, KMB, CLX: Large Outflows Detected at ETF
Fri, Aug 28, 11:34 AM ET, by ETF Channel

Symbols mentioned in this story: DVY, CME, KMB, CLX Exchange traded funds (ETFs) trade just ...

VCR, F, TWC, TGT: Large Outflows Detected at ETF
Fri, Aug 28, 11:34 AM ET, by ETF Channel

Symbols mentioned in this story: VCR, F, TWC, TGT Exchange traded funds (ETFs) trade just ...

RSP, CB, TE, CCE: ETF Outflow Alert
Fri, Aug 28, 11:34 AM ET, by ETF Channel

Symbols mentioned in this story: RSP, CB, TE, CCE Exchange traded funds (ETFs) trade just ...

VGK: ETF Outflow Alert
Fri, Aug 28, 11:24 AM ET, by ETF Channel

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

Utilities Select Sector SPDR Fund Experiences Big Inflow
Fri, Aug 28, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: XLU, NEE, D, SO Exchange traded funds (ETFs) trade just ...

GDX, GG, FNV, NEM: Large Inflows Detected at ETF
Fri, Aug 28, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: GDX, GG, FNV, NEM Exchange traded funds (ETFs) trade just ...

JNK: Large Outflows Detected at ETF
Fri, Aug 28, 11:14 AM ET, by ETF Channel

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

14.7% of FRAK Holdings Seeing Recent Insider Buys
Fri, Aug 28, 9:54 AM ET, by ETF Channel

A look at the weighted underlying holdings of the Unconventional Oil & Gas ETF (FRAK) ...

LMT a Top 25 Dividend Giant With $2.51B Held By ETFs
Fri, Aug 28, 8:34 AM ET, by ETF Channel

Lockheed Martin Corp. (LMT) has been named as a Top 25 ''Dividend Giant'' by ETF ...

Google Takes Over #2 Spot From Berkshire Hathaway
Thu, Aug 27, 12:14 PM ET, by ETF Channel

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

IEI: Large Inflows Detected at ETF
Thu, Aug 27, 11:14 AM ET, by ETF Channel

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

IVW, NKE, BIIB, KMI: Large Outflows Detected at ETF
Thu, Aug 27, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: IVW, NKE, BIIB, KMI Exchange traded funds (ETFs) trade just ...

Vanguard Total Bond Market ETF Experiences Big Inflow
Thu, Aug 27, 11:14 AM ET, by ETF Channel

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

DGRW, AAPL, MO, MCD: Large Inflows Detected at ETF
Thu, Aug 27, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: DGRW, AAPL, MO, MCD Exchange traded funds (ETFs) trade just ...

RTH Crosses Above Key Moving Average Level
Thu, Aug 27, 11:14 AM ET, by ETF Channel

In trading on Thursday, shares of the Retail ETF (RTH) crossed above their 200 day ...

10.6% of FAB Holdings Seeing Recent Insider Buys
Thu, Aug 27, 9:54 AM ET, by ETF Channel

A look at the weighted underlying holdings of the First Trust Multi Cap Value AlphaDEX ...

Why Analog Devices is a Top Socially Responsible Dividend Stock (ADI)
Thu, Aug 27, 9:24 AM ET, by ETF Channel

Analog Devices, Inc. (ADI) has been named a Top Socially Responsible Dividend Stock by Dividend ...

  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 - 2015, 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.