Berkshire Hathaway (BRK.A 1.13%) (BRK.B 1.23%) has the most closely followed stock portfolio in the world, and for a few good reasons. For one thing, it's a massive collection of investments. Even after the recent stock market downturn, Berkshire's portfolio is worth about $329 billion, making up more than half of the conglomerate's entire market cap. Second, the portfolio has a long history of market-beating investments that many investors would otherwise overlook or consider "boring." And last but certainly not least, many of the investments in the portfolio were hand-selected by legendary investor Warren Buffett himself.

However, a few years ago, Berkshire reported an interesting move in its portfolio. The company added shares of two exchange-traded funds, or ETFs. And while these are relatively small investments for Berkshire, it represents Berkshire's first major index fund investments. Here's a look at Berkshire's two ETFs and why they could be some of Warren Buffett's favorite investments even though they currently make up a tiny fraction of Berkshire's overall portfolio.

Berkshire's two ETFs

The two ETFs in Berkshire Hathaway's stock portfolio are the SPDR S&P 500 ETF Trust (SPY -0.04%) and the Vanguard S&P 500 ETF (VOO -0.05%). And they are both very similar. Both are S&P 500 index funds, which means they are designed to deliver the same long-term performance as the S&P 500 index.

The basic idea is that these funds pool investors' assets to buy shares of all 500 companies in the S&P 500 index, and in the same weightings as the index (more shares of larger companies). Both have low expense ratios, or investment fees, with the Vanguard fund charging just 0.03% of assets as an annualized fee, while the SPDR fund has a higher but still very low 0.09% expense ratio.

Buffett is a big fan of index funds like these

Buffett has referred to the S&P 500 as a bet on large American business, and that has historically been a good bet. In fact, a $10,000 investment in the S&P 500 would grow to more than $450,000 over 40 years at the index's historic rate of return.

Not only does Buffett believe the S&P 500 is an extraordinary tool for long-term investors, but he's a big fan of investing in low-cost index funds for the majority of people. Obviously, we love researching and investing in individual stocks at The Motley Fool and Buffett does as well -- but the fact is, the majority of Americans don't have the time, knowledge, or desire to do it right. Buffett has advised investors "if you like spending six to eight hours per week working on investments, do it. If you don't then dollar-cost average into index funds."

Buffett has said many times that index funds are the best way to invest for most people and claims that they'll outperform most other investors over time -- including hedge fund managers. In fact, in 2007, Buffett bet hedge fund manager Ted Seides that an S&P 500 index fund would beat a basket of at least five hedge funds of Seides' choosing over a 10-year period. The results weren't even close. The S&P 500 index fund delivered a 99% total return over the decade (which included the financial crisis), while the hedge fund basket managed just 24%.

So, although both ETF positions are small parts of Berkshire's portfolio (about $30 million total), Buffett is a big fan of these investments. In fact, he has directed that when he passes, 90% of his wife's inheritance is to be placed in a low-cost S&P 500 index fund like these. And even if you're a fan of individual stock investing like I am, a simple S&P 500 index fund can be an excellent "backbone" of any portfolio.