Bundle Up Berkshire: ETF Alternatives for Hot Stock Picks

by Will Ashworth | May 13, 2013 12:17 pm

The S&P 500 closed out last week with just over 1% gains and another new high. It appears that investors are moving out of defensive stocks like consumer staples and into technology and financial shares.

As a result, InvestorPlace contributors were busy looking for possibilities in both industries and a few others. With that in mind, here are my ETF alternatives.

Internet

Jim Woods kicked off the week talking about the Chinese internet mega-trend[1]. He pointed out that there were 538 million Internet users in China last year — 222 million more than the entire U.S. population. Plus, China’s penetration rate sits at only 40%. Think of the possibilities. Whether it be Baidu (NASDAQ:BIDU[2]) or Sina (NASDAQ:SINA[3]), the businesses on the ground serving the Chinese population should continue to make out like bandits.

When it comes to investing in this trend, I recently discovered an option I didn’t know was available. The fund — which has surprisingly been around since 2004 — is called the PowerShares Golden China Portfolio (NYSE:PGJ[4]) and invests in U.S. exchange-listed companies that derive a majority of their revenue from China. Baidu is the largest holding at 7.7%, while Sina’s the fourth largest at 6.6%. Over 50% of the fund’s $189 million in total net assets are invested in large caps, making it very attractive to conservative investors interested in the growing market.

Housing

Next up, InvestorPlace Assistant Editor Adam Benjamin was harping about the housing recovery[5] last week, pointing out three ways investors can join the party. If I had a dollar for every article written on this subject so far this year, I’d be a very rich man. In this example, retailers and homebuilders were two obvious options, while data providers like Zillow (NASDAQ:Z[6]) and Trulia (NYSE:TRLA[7]) were mentioned as more indirect plays.

The only problem, though, is that few decent ETF alternatives exist for those two names. Therefore, I’d stick with the Homebuilders SPDR (NYSE:XHB[8]). Its top 10 holdings include four out of the six retail and homebuilder stocks mentioned by Adam: Williams-Sonoma (NYSE:WSM[9]), Ryland Group (NYSE:RYL[10]), PulteGroup (NYSE:PHM[11]) and Fortune Brands (NYSE:FBHS[12]). Plus, the other two – Home Depot (NYSE:HD[13]) and Toll Brothers (NYSE:TOL[14]) — are in the remaining 25 holdings. And as usual, the SPDR is cheap. Its expense ratio is a mere 0.35%.

Jewelry

Yesterday was Mother’s Day. Last week, Kyle Woodley thus recommended five stocks[15] that could benefit from the holiday. Although Kyle provides us with a handful of ideas, the best fit when it comes to funds is Signet Jewelers (NYSE:SIG[16]), which owns both Kay and Jared. With no debt and earnings that are expected to grow more than 10% annually over the next few years, diamonds are indeed a mom’s best friend.

The ETF alternative in this instance is the PureFunds ISE Diamonds/Gemstone ETF (NYSE:GEMS[17]), which is the first pure-play ETF to exclusively invest in the full life cycle of the gemstone industry. It has 24 holdings, including Signet in the top spot at a weighting of 9.5%. The second spot goes to Dominion Diamond Corp. (NYSE:DDC[18]). While the ETF hasn’t done well in its short life (a mere five months so far), I expect better results over the long-term as demand exceeds supply. Of course, GEMS isn’t cheap at 0.69%; it’s a specialty fund, not a core holding.

Disney

Jonathan Berr was at the confessional May 8. It turns out he sold his shares[19] in Disney (NYSE:DIS[20]) last year … and it’s been on a tear ever since. With all three of its main business segments doing well, Berr reckons he made a mistake.

Jonathan and anyone else who feels Disney is a good investment can also get in buying the Consumer Discretionary SPDR (NYSE:XLY[21]) — a collection of 84 holdings including Mickey as the top one with a weighting of almost 7%. Plus, the fund’s 0.18% expense ratio makes it a really inexpensive way to play Disney and some other great consumer discretionary stocks like McDonald’s (NYSE:MCD[22]) and Starbucks (NASDAQ:SBUX[23]). What more could you want?

Berkshire Hathaway

Last of all, Charles Sizemore wondered what Warren Buffett[24] is planning to do about Berkshire Hathaway‘s (NYSE:BRK.A[25], BRK.B[26]) 13% investment in DaVita Healthcare (NYSE:DVA[27]). Sizemore reckons the potential market for dialysis is growing as the boomers age. What Sizemore didn’t say, though, is that Buffett’s agreed to limit his stake to 25% of the company in order to defend it from a hostile takeover.

If you want to kill two birds with one stone, I’d buy the Wide Moat ETF (NYSE:MOAT[28]), which is an equal weight fund that invests in 20 attractively priced companies with sustainable competitive advantages. Berkshire Hathaway is the ninth largest holding at just over 5%. While several financial ETFs have much bigger exposure to Buffett’s stock than this, Berkshire Hathaway already has significant financial services investments so MOAT makes more sense.

As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.

Endnotes:
  1. Chinese internet mega-trend: http://investorplace.com/2013/05/dont-miss-the-chinese-internet-mega-trend/
  2. BIDU: http://studio-5.financialcontent.com/investplace/quote?Symbol=BIDU
  3. SINA: http://studio-5.financialcontent.com/investplace/quote?Symbol=SINA
  4. PGJ: http://studio-5.financialcontent.com/investplace/quote?Symbol=PGJ
  5. housing recovery: http://investorplace.com/2013/05/3-ways-to-play-the-housing-recovery/
  6. Z: http://studio-5.financialcontent.com/investplace/quote?Symbol=Z
  7. TRLA: http://studio-5.financialcontent.com/investplace/quote?Symbol=TRLA
  8. XHB: http://studio-5.financialcontent.com/investplace/quote?Symbol=XHB
  9. WSM: http://studio-5.financialcontent.com/investplace/quote?Symbol=WSM
  10. RYL: http://studio-5.financialcontent.com/investplace/quote?Symbol=RYL
  11. PHM: http://studio-5.financialcontent.com/investplace/quote?Symbol=PHM
  12. FBHS: http://studio-5.financialcontent.com/investplace/quote?Symbol=FBHS
  13. HD: http://studio-5.financialcontent.com/investplace/quote?Symbol=HD
  14. TOL: http://studio-5.financialcontent.com/investplace/quote?Symbol=TOL
  15. five stocks: http://investorplace.com/2013/05/5-mothers-day-stocks-for-many-happy-returns/view-all/
  16. SIG: http://studio-5.financialcontent.com/investplace/quote?Symbol=SIG
  17. GEMS: http://studio-5.financialcontent.com/investplace/quote?Symbol=GEMS
  18. DDC: http://studio-5.financialcontent.com/investplace/quote?Symbol=DDC
  19. sold his shares: http://investorplace.com/2013/05/why-i-shouldnt-have-sold-disney-stock/
  20. DIS: http://studio-5.financialcontent.com/investplace/quote?Symbol=DIS
  21. XLY: http://studio-5.financialcontent.com/investplace/quote?Symbol=XLY
  22. MCD: http://studio-5.financialcontent.com/investplace/quote?Symbol=MCD
  23. SBUX: http://studio-5.financialcontent.com/investplace/quote?Symbol=SBUX
  24. Warren Buffett: http://investorplace.com/2013/05/what-is-buffett-up-to-brk-a-brk-b-dva/
  25. BRK.A: http://studio-5.financialcontent.com/investplace/quote?Symbol=BRK.A
  26. BRK.B: http://studio-5.financialcontent.com/investplace/quote?Symbol=BRK.B
  27. DVA: http://studio-5.financialcontent.com/investplace/quote?Symbol=DVA
  28. MOAT: http://studio-5.financialcontent.com/investplace/quote?Symbol=MOAT

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