March 2, 2022

87% of Warren Buffett’s Portfolio Is in These 3 Sectors

[The Motley Fool]

Diversification isn’t necessary if you know what you’re doing.

Key Points

  • The Oracle of Omaha has overseen the creation of more than $710 billion in shareholder value since becoming CEO.
  • Despite managing a $340 billion investment portfolio, $296 billion is devoted to only three sectors.

Few investors have a nose for making money quite like Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett. Since taking the reins in 1965, he’s overseen the creation of more than $710 billion in market value for shareholders (himself included) and delivered an aggregate return of 3,873,220% for the company’s Class A shares (BRK.A), through last weekend.

Perhaps the most surprising aspect of Buffett’s success is his lack of investing 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 securities, almost $296 billion — roughly 87% — of the company’s invested assets are tied up in only three sectors.

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

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

Warren Buffett’s love of Apple looks to be based on the company’s branding power, innovation, and capital return policy. For instance, Apple is the runaway leader in smartphone sales in the United States. Following the introduction of 5G-capable iPhones, Apple reported 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 multiyear operating transition that’s emphasizing its subscription services. Promoting services should help the company lift its operating margins over the long run while minimizing the revenue lumpiness that can occur toward the end of product replacement cycles.

But what Buffett really loves to talk up is Apple’s capital return program. In Berkshire Hathaway’s annual shareholder letter, which was released last weekend, Buffett pointed out that his company collected $785 million in dividend income from Apple in 2021. What’s more, with Apple consistently repurchasing its shares, Berkshire’s ownership in the company continues to climb without any additional investment.

A bank teller handing cash back to a customer.


Financials: $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 close to 30% of it is tied up in a dozen financial stocks. Banks and insurers have historically been Buffett’s core research focus.

The reason the Oracle of Omaha owns 12 financial stocks totaling $101.6 billion is simple: they’re cyclical. Buffett is well aware that recessions are an inevitable part of the economic cycle. But he’s also steadfast in the belief that investors should “never bet against America.” This is to say that over the long run, the U.S. economy spends a disproportionately longer amount of time expanding than it does contracting. If investors buy into high-quality financial stocks and hang onto them for long periods of time, they should be handsomely rewarded as the U.S. and global economies grow.

Bank of America (NYSE:BAC) is currently Berkshire Hathaway’s second-largest holding ($46.5 billion). Aside from appreciating the cyclical nature of the banking industry, I’d surmise that Buffett also values BofA’s interest sensitivity and top-notch capital return plan.

Concerning the former, no money-center bank is more sensitive to the movement of the interest rate yield curve than Bank of America. In its 2021 year-end report, the company noted that a 100-basis-point parallel shift in the interest rate yield curve would generate an estimated $6.5 billion in added net interest income. With the Federal Reserve set to begin hiking 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 beefed-up dividend and share buyback program by midyear. My suspicion is the Oracle of Omaha is counting on it.

A person working outside and wearing overalls who's taking a sip from a Coca-Cola bottle.


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

The third sector Warren Buffett and his investing team have a significant amount of capital tied up in is consumer staples. Berkshire holds stakes in five consumer staples stocks, with an aggregate market value of $41 billion, as of last weekend.

Consumer staples consist of goods and services that are essential to people on a daily basis. Everything from food and beverages to household goods and personal hygiene products are examples of consumer staples. Since Buffett believes in not betting against America, and he understands that the U.S. and global economy will expand over time, consumer staple stocks serve as a smart way to take advantage of this natural expansion.

Warren Buffett’s best-known consumer staple stock is undoubtedly Berkshire Hathaway’s longest-tenured holdingCoca-Cola (NYSE:KO). Coke has been a continuous holding in Berkshire’s portfolio since 1988, with Buffett’s position totaling more than $25.1 billion.

Although Coca-Cola’s growth heyday has long since passed, the company continues to deliver modest organic sales growth and highly predictable operating cash flow. It holds a hearty 20% share of cold beverages sold in developed markets and a 10% share of cold beverage sales in faster-growing emerging markets. In other words, the company is generating predictable cash flow in mature markets and basking in opportunities to increase sales faster in emerging-market regions.

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

By Sean Williams

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