Is the Oracle of Omaha trying to tell us something?
When Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) releases its quarterly 13F filing of its portfolio holdings, there is typically a lot to digest.
Investors want to know what one of the world’s greatest investors, Warren Buffett, is thinking at any given time. And because he rarely discusses why he and his team made the moves that they did, it is left for us to speculate on the motives.
This latest 13F is particularly interesting because Buffett completely exited out of a position in Ulta Beauty (NASDAQ:ULTA) after holding it for about six months.
He also completely sold out of two ETFs that track the S&P 500 – the Vanguard S&P 500 ETF (NYSEARCA:VOO) and the SPDR S&P 500 Trust ETF (NYSEARCA:SPDR). These are the two largest ETFs in the world, in fact, just this week, the Vanguard S&P 500 ETF surpassed the SPDR S&P 500 ETF as the largest in the world, with some $632 billion in assets.
The portfolio only had about $23 million invested in each of these ETFs, which is a drop in the bucket for the $267 billion portfolio. But it signals something larger about perhaps Buffett and his team’s view on the market.
What this move out of the S&P 500 could mean
The decision to sell out of the S&P 500, particularly the Vanguard S&P 500 ETF, flies in the face of what the average investor is doing.
The Vanguard S&P 500 ETF is the fastest growing ETF in the world by far, and it’s not erven close. Last year, it attracted $116 billion in inflows, which is $30 billion more than the closest competitor. And in January of this year, it has already brought in about $22 billion in inflows, which is one quarter of the entire $86 billion that flowed into all ETFs last month.
So, while investors are piling into this S&P 500 ETF, Buffett is getting out.
Again, it’s a small position, but this and other moves may indicate that Buffett sees rocky seas ahead for the S&P 500 and large caps in general. This is something that others have said as well, so it’s not earth shattering. Large-caps and the S&P 500 in general is historically overvalued after two of the best years for the benchmark in recent history.
The past two years marked the first time since 1998 that the S&P 500 returned 20% or more two years in a row. And the last time it happened, a couple of years later, the overvalued bull market turned into a bear.
Stock pickers market
Its because of that, and potential economic headwinds, that many experts are calling this a stock pickers market, where actively managed ETFs should become increasingly popular as investors look for pros to find the best stocks rather than relying on the index.
The other huge sign that Buffett is less than bullish on the market right now is his massive, and growing, stockpile of cash. Buffett has some $325 billion in cash sitting on the sidelines, which is more than he has invested. That’s more than double the amount of cash that Berkshire Hathaway held just two years ago.
And it’s another way the noted value investor is indicating that he doesn’t see a lot of good options out there right now.
Keep in mind, managing a mega-billion portfolio is a lot different than managing an individual portfolio. For starters, it is just too big to invest in a lot of small caps. But the takeaway here is to be wary of valuations and know that this market may be better suited for stock pickers.
