RevenueShares Financials Sector Fund (RWW)
The RevenueShares Financials Sector Fund (RWW) uses revenue rather than market cap to weight each of the 81 stocks in its portfolio. For this reason Berkshire Hathaway (BRK.B) is No. 1, at 11.3%. Year-to-date through Dec. 13, the fund is up 37% — a full 10 percentage points higher than Warren Buffett’s holding company and the S&P 500. Financial stocks have now had two good years in a row. I see Berkshire Hathaway being a big contributor to a third consecutive year outperforming the index.
RWW is one of six ETFs that hold BRK.B at a weighting of more than 5%, and is the most expensive of those in terms of management fees at 0.49%. That’s much more expensive than the Financial SPDR Fund (XLF) — the market cap version of the S&P 500 Financials index — which holds BRK.B at a weighting of 7.94% and has an expense ratio of 0.18%. However, the RWW has beaten the XLF on an annual basis in four of the last five years. Long-term the additional fees are worth it.
In November, two analysts from AQR Capital Management and a professor from New York University published a revised draft of a May 2012 paper entitled Buffett’s Alpha, which sought to examine why Warren Buffett’s performance has been so good over the years. The authors concluded: “ … the secret to Buffett’s success is his preference for cheap, safe, high-quality stocks combined with his consistent use of leverage to magnify returns while surviving the inevitable large absolute and relative drawdowns this entails.” Whether it be Berkshire Hathaway’s private or public holdings, leverage has helped juice its returns.
While I don’t like every holding of Buffett’s, I continue to see good things for his firm in 2014; RWW is the best way to benefit from BRK.Bs success.