New Buffett-inspired ETF holds Berkshire and Apple. It aims for 15% yield.
An income-oriented fund keyed off Warren Buffett's equity portfolio at Berkshire Hathaway has attracted nearly $250 million and has delivered a 15% distribution rate to investors since its inception in March.
The VistaShares Target 15 Berkshire Select Income exchange-traded fund holds 21 stocks. It puts 10% of its assets in Berkshire's Class B shares, and invests in 20 stocks held in Berkshire's equity portfolio. It also uses an options strategy, mainly the writing of call options, to generate income.
Its ticker symbol is OMAH, a reference to the Berkshire's headquarters in Omaha, Neb.
'Berkshire clearly has a broad investor base and Warren Buffett is the best investor ever," says VistaShares CEO Adam Patti. 'Berkshire doesn't pay a dividend on its stock. We felt there was an opportunity to mirror the holdings and provide a 15% target" annual yield.
Distributions are paid monthly.
The ETF, which finished Monday at $19.15, is one of many that use the sale, or writing, of call options to augment income. Probably the most prominent is the $40 billion JPMorgan Equity Premium Income ETF (JEPI), which has a current yield of 11%.
Given the income orientation, the Berkshire ETF may be better suited to tax-free accounts such as IRAs and 401(k)s.
The VistaShares Berkshire fund, like others that use call writing, limit their upside by selling the calls but the income can be substantial.
'Any income strategy will not keep up in an aggressive bull market" due options, Patti says. It should do best relative to a buy and hold strategy in a flattish market due to the option income.
The option strategy won't protect investors in a downturn, but the income will offset any stock-price declines in a bear market.
The Berkshire ETF is about flat based on its total return since its inception in early March. The Berkshire index of 21 stocks that it tracks has fallen about 4% and that has been offset by the income from the option strategy. It has produced income in line with its 15% annualized goal.The ETF rebalances quarterly with the most recent occurring in May. The largest four holdings as of Friday were Apple (10.2%), Berkshire B shares (9.8%), American Express (8.4%), and Coca-Cola (6.2%). Bigger Berkshire equity investments get a larger weighting in the ETF.
The fund isn't for investors seeking significant capital gains on Berkshire's stocks.
'The No. 1 goal is to hit 15% and the second goal is to maximize capital appreciation," Patti says. 'We want as much upside as possible but not to the detriment of hitting the 15%."
VistaShares also has filed for a group of new active-traded ETFs that will invest in the publicly disclosed holding of three other notable investors: Bill Ackman, Stan Druckenmiller, and Michael Burry. Those funds could hit the market by Labor Day, as well as a new Berkshire ETF that will invest in the same 21 stocks as the existing one but refrain from writing call options.
The Ackman, Druckenmiller, and Burry-themed ETFs will come in two forms: a plain vanilla fund that will just hold their stocks and one using their stocks plus a call-writing strategy.
Write to Andrew Bary at andrew.bary@barrons.com
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