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

Becton, Dickinson Takes Over #114 Spot From CSRA
Fri, Feb 12, 11:54 AM ET, by ETF Channel

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

PCEF Crosses Critical Technical Indicator
Fri, Feb 12, 10:54 AM ET, by ETF Channel

In trading on Friday, shares of the PowerShares CEF Income Composite Portfolio ETF (PCEF) entered ...

GLD: Large Inflows Detected at ETF
Fri, Feb 12, 10:54 AM ET, by ETF Channel

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

MDY, JAH, MTD, RE: Large Outflows Detected at ETF
Fri, Feb 12, 10:54 AM ET, by ETF Channel

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

The Math Shows IXN Can Go To $108
Fri, Feb 12, 8:14 AM ET, by ETF Channel

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

Implied SPHQ Analyst Target Price: $25
Fri, Feb 12, 8:14 AM ET, by ETF Channel

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

Implied FXO Analyst Target Price: $25
Fri, Feb 12, 8:14 AM ET, by ETF Channel

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

RHS's Underlying Holdings Imply 10% Gain Potential
Fri, Feb 12, 8:14 AM ET, by ETF Channel

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

iShares MSCI USA Value Factor (VLUE) Enters Oversold Territory
Thu, Feb 11, 4:14 PM ET, by ETF Channel

In trading on Thursday, shares of the iShares MSCI USA Value Factor ETF (VLUE) entered ...

DFJ Crosses Critical Technical Indicator
Thu, Feb 11, 3:54 PM ET, by ETF Channel

In trading on Thursday, shares of the WisdomTree Japan SmallCap Dividend Fund ETF (DFJ) entered ...

Multi-Asset Diversified Income Index Fund (MDIV) Enters Oversold Territory
Thu, Feb 11, 3:54 PM ET, by ETF Channel

In trading on Thursday, shares of the Multi-Asset Diversified Income Index Fund ETF (MDIV) entered ...

EFG Crosses Critical Technical Indicator
Thu, Feb 11, 3:54 PM ET, by ETF Channel

In trading on Thursday, shares of the iShares MSCI EAFE Growth ETF (EFG) entered into ...

GWX Crowded With Sellers
Thu, Feb 11, 3:54 PM ET, by ETF Channel

In trading on Thursday, shares of the SPDR S&P International Small Cap ETF (GWX) entered ...

Mondelez International Moves Up In Analyst Rankings, Passing Red Hat
Thu, Feb 11, 12:14 PM ET, by ETF Channel

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

IWP Crowded With Sellers
Thu, Feb 11, 11:44 AM ET, by ETF Channel

In trading on Thursday, shares of the iShares Russell Mid-Cap Growth ETF (IWP) entered into ...

IJR Crosses Critical Technical Indicator
Thu, Feb 11, 11:44 AM ET, by ETF Channel

In trading on Thursday, shares of the iShares Core S&P Small-Cap ETF (IJR) entered into ...

PFF Crowded With Sellers
Thu, Feb 11, 11:44 AM ET, by ETF Channel

In trading on Thursday, shares of the iShares U.S. Preferred Stock ETF (PFF) entered into ...

SPDR S&P 600 Small Cap Growth (SLYG) Enters Oversold Territory
Thu, Feb 11, 11:44 AM ET, by ETF Channel

In trading on Thursday, shares of the SPDR S&P 600 Small Cap Growth ETF (SLYG) ...

SPDR S&P Insurance (KIE) Enters Oversold Territory
Thu, Feb 11, 11:44 AM ET, by ETF Channel

In trading on Thursday, shares of the SPDR S&P Insurance ETF (KIE) entered into oversold ...

REZ Crosses Critical Technical Indicator
Thu, Feb 11, 11:44 AM ET, by ETF Channel

In trading on Thursday, shares of the iShares Residential Real Estate Capped ETF (REZ) entered ...

EFV Crosses Critical Technical Indicator
Thu, Feb 11, 11:44 AM ET, by ETF Channel

In trading on Thursday, shares of the iShares MSCI EAFE Value ETF (EFV) entered into ...

SPDR Dow Jones REIT (RWR) Enters Oversold Territory
Thu, Feb 11, 11:44 AM ET, by ETF Channel

In trading on Thursday, shares of the SPDR Dow Jones REIT ETF (RWR) entered into ...

iShares U.S. Real Estate Getting Very Oversold
Thu, Feb 11, 11:35 AM ET, by ETF Channel

In trading on Thursday, shares of the iShares U.S. Real Estate ETF (IYR) entered into ...

PowerShares Fundamental High Yield Corporate Bond Portfolio Getting Very Oversold
Thu, Feb 11, 11:35 AM ET, by ETF Channel

In trading on Thursday, shares of the PowerShares Fundamental High Yield Corporate Bond Portfolio ETF ...

Vanguard Information Technology ETF Experiences Big Outflow
Thu, Feb 11, 11:35 AM ET, by ETF Channel

Symbols mentioned in this story: VGT, TEL, GLW, HPQ Exchange traded funds (ETFs) trade just ...

Vanguard Mega Cap Growth (MGK) Enters Oversold Territory
Thu, Feb 11, 11:35 AM ET, by ETF Channel

In trading on Thursday, shares of the Vanguard Mega Cap Growth ETF (MGK) entered into ...

The Math Shows IJJ Can Go To $130
Thu, Feb 11, 8:14 AM ET, by ETF Channel

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

Add Up The Parts: IYR Could Be Worth $83
Thu, Feb 11, 8:14 AM ET, by ETF Channel

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

How The Pieces Add Up: HDV Targets $81
Thu, Feb 11, 8:14 AM ET, by ETF Channel

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

Implied IWO Analyst Target Price: $170
Thu, Feb 11, 8:14 AM ET, by ETF Channel

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

IWN's Underlying Holdings Could Mean 27% Gain Potential
Thu, Feb 11, 8:14 AM ET, by ETF Channel

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

Shares of IPAC Now Oversold
Wed, Feb 10, 4:14 PM ET, by ETF Channel

In trading on Wednesday, shares of the iShares Core MSCI Pacific ETF (IPAC) entered into ...

Shares of HEWJ Now Oversold
Wed, Feb 10, 4:14 PM ET, by ETF Channel

In trading on Wednesday, shares of the iShares Currency Hedged MSCI Japan ETF (HEWJ) entered ...

Shares of EWJ Now Oversold
Wed, Feb 10, 4:14 PM ET, by ETF Channel

In trading on Wednesday, shares of the iShares MSCI Japan ETF (EWJ) entered into oversold ...

BLV: ETF Inflow Alert
Wed, Feb 10, 11:24 AM ET, by ETF Channel

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

DIA, GS, BA, UNH: Large Inflows Detected at ETF
Wed, Feb 10, 11:24 AM ET, by ETF Channel

Symbols mentioned in this story: DIA, GS, BA, UNH Exchange traded funds (ETFs) trade just ...

IWD, AIG, MDLZ, WBA: Large Outflows Detected at ETF
Wed, Feb 10, 11:24 AM ET, by ETF Channel

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

QID: ETF Inflow Alert
Wed, Feb 10, 10:54 AM ET, by ETF Channel

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

SCPB: ETF Outflow Alert
Wed, Feb 10, 10:54 AM ET, by ETF Channel

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

SPLV, PSA, XL, CB: Large Inflows Detected at ETF
Wed, Feb 10, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: SPLV, PSA, XL, CB Exchange traded funds (ETFs) trade just ...

VTI: Large Inflows Detected at ETF
Wed, Feb 10, 10:54 AM ET, by ETF Channel

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

FDM's Holdings Imply 24% Gain Potential
Wed, Feb 10, 9:34 AM ET, by ETF Channel

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

We Did The Math FTY Can Go To $51
Wed, Feb 10, 9:34 AM ET, by ETF Channel

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

Add Up The Pieces: BIZD Could Be Worth $19
Wed, Feb 10, 9:34 AM ET, by ETF Channel

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

Analysts See 32% Gains Ahead For EMIF
Wed, Feb 10, 9:34 AM ET, by ETF Channel

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

YCS Crowded With Sellers
Tue, Feb 9, 4:14 PM ET, by ETF Channel

In trading on Tuesday, shares of the ProShares UltraShort Yen ETF (YCS) entered into oversold ...

RXI Crowded With Sellers
Tue, Feb 9, 4:14 PM ET, by ETF Channel

In trading on Tuesday, shares of the iShares Global Consumer Discretionary ETF (RXI) entered into ...

See How United Technologies Ranks Among Analysts' Top Dow 30 Picks
Tue, Feb 9, 12:14 PM ET, by ETF Channel

A study of analyst recommendations at the major brokerages shows that United Technologies Corp (UTX) ...

VFC Achieves #71 Analyst Rank, Surpassing Laboratory Corporation of America Holdings
Tue, Feb 9, 12:14 PM ET, by ETF Channel

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

FXG, STZ, HRL, DPS: ETF Outflow Alert
Tue, Feb 9, 11:24 AM ET, by ETF Channel

Symbols mentioned in this story: FXG, STZ, HRL, DPS Exchange traded funds (ETFs) trade just ...

  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 - 2016, 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.