There are plenty of successful money managers, but few can hold a candle to what Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) CEO Warren Buffett has brought to the table for his company's long-term shareholders. Since taking the reins almost six decades ago, Buffett has delivered an annualized return on his company's Class A shares (BRK.A) of nearly 20%. On an aggregate basis, we're talking about gains of better than 4,400,000%.
Doubling up the annualized return of the benchmark S&P 500 (^GSPC 1.02%) for well over a half-century is bound to draw investors' attention -- and it's precisely why investors wait on the edge of their proverbial seats to see what the Oracle of Omaha and his investment team have been buying and selling.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Warren Buffett's "secret" portfolio has nearly $610 million of invested assets
Roughly two weeks ago, on Nov. 14, money managers with at least $100 million in assets under management were required to file Form 13F with the Securities and Exchange Commission (SEC). A 13F provides investors with an under-the-hood look at what Wall Street's most successful investment minds bought and sold in the latest quarter (in this case, the September-ended quarter).
Although the Oracle of Omaha and his team weren't too active on the buy side of the equation, satellite-radio operator Sirius XM Holdings (SIRI) was re-added to Berkshire's portfolio following a roughly two-year absence. Sirius XM operates as a monopoly in satellite radio, and it generates more than three-quarters of its net sales from subscriptions, as opposed to advertising. This should allow it to successfully navigate economic downturns better than its peers.
On the flip side, Warren Buffett and his investment lieutenants, Ted Weschler and Todd Combs, oversaw the removal of five longtime brand-name holdings from Berkshire Hathaway's portfolio, including auto giant General Motors; consumer staples stock Procter & Gamble, which has raised its base annual dividend for 67 consecutive years; and healthcare conglomerate Johnson & Johnson, which is one of only two publicly traded companies to hold a AAA-credit rating.
However, you might be surprised to learn that Berkshire Hathaway's 13F doesn't tell the full story, at least when it comes to aggregate assets invested by Buffett's company.
In 1998, Berkshire Hathaway acquired General Re in a $22 billion deal. Though the prize of this deal was General Re's reinsurance operations, General Re also owned a specialty investment company: New England Asset Management (NEAM). When the deal was concluded, NEAM became a wholly owned subsidiary of Berkshire Hathaway.
Today, New England Asset Management oversees nearly $610 million of invested assets. While this pales in comparison to the $358 billion portfolio that Warren Buffett and his top aides oversee, it's still large enough to merit a quarterly 13F filing with the SEC. It also effectively means that NEAM is Warren Buffett's "secret" portfolio -- i.e., what NEAM owns is, ultimately, part of Berkshire Hathaway.
It's what's contained in Buffett's hidden portfolio that's the real gem for investors.
Image source: Getty Images.
The top holding in Buffett's secret portfolio is a guaranteed moneymaker, but comes with a catch
As recently as the fourth quarter of 2022, New England Asset Management's portfolio and Berkshire Hathaway's portfolio were both concentrated in a handful of time-tested, industry-leading businesses, such as Apple, Chevron, Bank of America, and HP.
But during the March-ended quarter of this year, the asset managers at NEAM sold nearly all (or the entirety, in HP's case) of these four holdings. Despite still having stakes in more than 100 securities, as of Sept. 30, there's one holding that's far and away the largest in Warren Buffett's secret portfolio. Interestingly enough, it's a security that has a flawless track record of making investors richer, but it comes with one very big condition.
With a position of more than 201,000 shares totaling north of $86 million in market value (as of Sept. 30), the SPDR S&P 500 ETF Trust (SPY 0.95%) is the largest holding in Buffett's hidden portfolio. As its name implies, this is an exchange-traded fund (ETF) that aims to mirror the performance of the benchmark S&P 500.
To be clear, the S&P 500 does, indeed, have down years. Last year, the broad-based index shed as much as 26% of its value, at its peak, and decisively entered bear market territory. But over long periods, the benchmark index has been nothing short of a guaranteed moneymaker, based on what history tells us.
Every year, the analysts at Crestmont Research update a dataset that examines the rolling 20-year total returns, including dividends paid, of the S&P 500. Even though the S&P didn't expand to 500 companies until 1957, and the index didn't exist prior to 1923, researchers were able to locate its original components in other indexes before 1923. This allowed the total returns data to be back-tested to 1900, which yielded 104 rolling 20-year periods (1919-2022).
What Crestmont's dataset shows is that if an investor hypothetically purchased an S&P 500 tracking index, such as the SPDR S&P 500 ETF Trust, and held that position for 20 years, they would have made money in all 104 periods examined. Even with the occasional down year for Wall Street, holding for 20 years is the aforementioned "big condition" that's led to a 100% success rate for investors.
To add to the above, the positive annualized returns registered during these 104 rolling 20-year periods pretty consistently outpaced the prevailing inflation rate, leading to real wealth creation. Whereas only a few rolling 20-year periods produced annualized returns of between 3% and 5%, around 50 ending years yielded annualized returns ranging from 9% to 17.1%. Returns of this magnitude can, with reinvestment, double an investors' money every four to eight years. It's precisely why Buffett suggests that everyday investors consider buying index funds like the SPDR S&P 500 ETF Trust.
As a final note, the SPDR S&P 500 ETF Trust isn't the only S&P 500-tracking index fund that can make long-term-minded investors richer. The Vanguard S&P 500 ETF (VOO 1.00%), which is also tasked with mirroring the performance of the benchmark index, has one key advantage over its counterpart: its net expense ratio.
The net expense ratio is the percentage of your investment that goes toward paying fund fees, such as management, marketing, and administrative costs. While index funds tend to have low net expense ratios from the get-go, the Vanguard S&P 500 ETF's net expense ratio of 0.03% is microscopic, when compared to the 0.09% net expense ratio for the SPDR S&P 500 ETF Trust. Put another way, investors will only owe $0.30 for every $1,000 invested with the Vanguard S&P 500 ETF, compared to $0.90 for every $1,000 invested with the largest holding in Warren Buffett's secret portfolio.
While this net expense ratio difference might sound like peanuts, it can be sizable if your nest egg meaningfully grows, or if you're dealing with a large starting investment.
