87% of Warren Buffett’s portfolio is in these 3 sectors

FNew investors have a flair for making money, just like Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett. Since taking the reins in 1965, he has overseen the creation of more than $710 billion in market value for shareholders (himself included) and generated an aggregate return of 3,873,220% for the shares of category A of the company (BRK.A), until last weekend.

Perhaps the most surprising aspect of Buffett’s success is his lack of investment diversification. The Oracle of Omaha has long believed that diversification is only necessary if you don’t know what you’re doing. Even though Berkshire Hathaway’s nearly $340 billion investment portfolio holds 46 stocks, nearly $296 billion, or about 87%, of the company’s invested assets are tied to just three sectors.

Warren Buffett, CEO of Berkshire Hathaway. Image source: The Motley Fool.

Information technology: $153.3 billion (45.09% of invested assets)

For an investor who has avoided owning tech stocks for decades, you might be shocked to learn that more than 45% of Berkshire Hathaway’s investment portfolio is related to information technology. Although Buffett’s company has stakes in four tech stocks, the lion’s share of that position is tied to Apple (NASDAQ:AAPL)which represents 44% of Berkshire’s invested assets.

Warren Buffett’s love for Apple seems to be based on the power of branding, innovation and the company’s return on capital policy. For example, Apple is the uncontrollable leader in smartphone sales in the United States. Following the introduction of 5G-enabled iPhones, Apple saw record sales and profits as users upgraded their devices to take advantage of the first upgrade to wireless download speeds in a decade.

Apple also happens to be in the midst of a multi-year operational transition that emphasizes its subscription services. Promoting services should help the company increase operating margins over the long term while minimizing the revenue stream that can occur towards the end of product replacement cycles.

But what Buffett really likes to say is Apple’s return of capital program. In Berkshire Hathaway’s annual letter to shareholders, which was released last weekend, Buffett pointed out that his company received $785 million in dividend income from Apple in 2021. Additionally, with Apple constantly buying back its stock , Berkshire’s stake in the company continues to climb without any additional investment.

A bank teller handing money to a customer.

Image source: Getty Images.

Finances: $101.6 billion (29.89% of invested assets)

On the other hand, the least surprising aspect of Warren Buffett’s $340 billion investment portfolio is that nearly 30% of it is tied to a dozen financial stocks. Banks and insurers have always been at the heart of Buffett’s research.

The reason the Oracle of Omaha owns 12 financial stocks totaling $101.6 billion is simple: they are cyclical. Buffett is well aware that recessions are an inevitable part of the business cycle. But he is also a firm believer that investors should “never bet against America.” That is, over the long term, the US economy spends much more time expanding than contracting. If investors buy high-quality financial stocks and hold them for long periods of time, they should be handsomely rewarded as the US and global economies grow.

Bank of America (NYSE: BAC) is currently Berkshire Hathaway’s second largest holding ($46.5 billion). In addition to enjoying the cyclical nature of the banking industry, I suspect Buffett also appreciates BofA’s interest rate sensitivity and blue chip capital return plan.

Regarding the first, no money center bank is more sensitive to the movement of the yield curve than Bank of America. In its 2021 year-end report, the company noted that a parallel shift of 100 basis points in the yield curve would generate about $6.5 billion in additional net interest income. With the Federal Reserve expected to start raising interest rates this month, BofA is poised to benefit more than its peers.

With increased profitability on the horizon and a capital-rich balance sheet, BofA CEO Brian Moynihan will likely look to reward shareholders with a boosted dividend and share buyback program by mid-year. . I suspect the Oracle of Omaha is counting on it.

A person working outdoors and wearing overalls taking a sip from a bottle of Coca-Cola.

Image source: Coca-Cola.

Consumer Staples: $41 billion (12.07% of invested assets)

The Third Sector Warren Buffett and his investment team have significant capital tied up in consumer staples. Berkshire holds stakes in five consumer staples stocks, with an aggregate market value of $41 billion, as of last weekend.

Basic consumer goods consist of goods and services that people need on a day-to-day basis. Everything from food and drink to household items and personal hygiene products are examples of consumer staples. Since Buffett believes in not betting against America and understands that the US and global economy will grow over time, consumer staples stocks are a smart way to capitalize on that expansion. natural.

Warren Buffett’s best-known consumer staples stock is arguably Berkshire Hathaway’s oldest stock, Coca Cola (NYSE:KO). Coke has been an ongoing holding in Berkshire’s portfolio since 1988, with Buffett’s position totaling more than $25.1 billion.

Although the peak of Coca-Cola’s growth is long gone, the company continues to show modest organic sales growth and highly predictable cash flow from operations. It has a solid 20% share of cold beverage sales in developed markets and a 10% share of cold beverage sales in faster growing emerging markets. In other words, the company generates predictable cash flow in mature markets and takes advantage of opportunities to grow sales faster in emerging market regions.

Considering that Berkshire Hathaway’s annual return on Coca-Cola is 54%, relative to its cost base, it’s highly unlikely that position will be sold or reduced as long as Buffett is CEO.

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Sean Williams owns Bank of America. The Motley Fool owns and recommends Apple and Berkshire Hathaway (B shares). The Motley Fool recommends the following options: $200 long calls in January 2023 on Berkshire Hathaway (B shares), long $120 calls in March 2023 on Apple, short $200 calls in January 2023 on Berkshire Hathaway (B shares) , short calls of $265 in January 2023 on Berkshire Hathaway (B shares) and short calls of $130 in March 2023 on Apple. The Motley Fool has a disclosure policy.

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