Buffett’s Berkshire Is Being Packaged Into a Leveraged ETF – Yahoo Finance
(Bloomberg) — Warren Buffett created Berkshire Hathaway's Class B shares nearly 30 years ago to thwart money managers who wanted to split up shares in the expensive conglomerate.
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One of South Korea's largest retail brokerages now plans to package its Class B shares into derivative-heavy exchange-traded funds (ETFs), which Mr. Buffett may not like, either.
Kium Securities has partnered with Milwaukee-based Tidal Investments to create an ETF designed to provide 200% of Berkshire's daily performance, according to a regulatory filing.
Single-stock ETFs like this one are taking the fund world by storm, using leverage to magnify the potential gains and losses of high-flyers like Nvidia and Tesla. In South Korea, it is used by securities companies such as Toss Securities and Mirae. Asset Securities Company is looking to capitalize on increased demand for U.S. stocks as domestic stocks underperform.
“Traditionally, in leveraged ETFs, most of the interest and asset flows have been concentrated in more volatile stocks,” Gavin Fillmore, Tidal's chief revenue officer, said in an interview. “Berkshire is almost the exact opposite.”
Leveraged ETFs are often aimed at active traders who want to bet on a stock's performance within a single day, as tracking a stock over a long period of time typically throws it off track. Berkshire's use of derivatives to boost profits may not sit well with Mr. Buffett, who once called derivatives “financial weapons of mass destruction.”
Buffett's company is a household name, but it remains to be seen whether day traders will have the appetite to take advantage of such stable stocks with this type of leverage strategy. Buffett is known as the ultimate long-term investor, advising people to own stocks that they can comfortably hold for years.
Mr. Buffett, 94, and his company already have supporters in South Korea. As of Nov. 8, individual investors in South Korea held more than $800 million in Berkshire's Class A and Class B shares, according to data compiled by the Korea Securities Depository Center.
Matthew Palazola, an insurance analyst at Bloomberg Intelligence, said Asian markets are “liking Berkshire.”
A representative for Kium declined to comment. Representatives for Berkshire did not respond to messages seeking comment.
Korean retail investors employ some of the largest leveraged ETFs listed in the US. Direxion Daily TSLA Bull 2X Shares, a single-stock Tesla stock ETF, has attracted $225 million from Korean retail investors so far this year, and as of November 8th reported that its total investment has reached $1.2 billion. Vault data.
As it is known, the Kick BRK 2X Long Daily Target will be the first Berkshire single-stock ETF in the United States, although there are several other ETFs trading overseas. Still, they have not been able to gain many supporters. 2x Long on Leveraged Stocks Berkshire Hathaway ETP Securities, which trades on multiple European exchanges, has only about $2.3 million in assets.
Kium's new ETF will buy Berkshire's Class B shares and potentially issue its own shares to investors at a price far lower than the selling price of $467.36 per Class B share as of Monday's market close. be. To increase its exposure to Berkshire's daily profits, the ETF will also enter into a swap with a broker-dealer to trade exchange-traded options on Company B shares, based in Omaha, Nebraska.
The Berkshire ETF will be a Kium product that Tidal will manage behind the scenes in exchange for a portion of its management fees.
“Dirty Reputation”
Wall Street's efforts to create an early version of a single-stock fund for Berkshire stocks prompted Mr. Buffett to create the company's Class B shares nearly 30 years ago. At the time, Berkshire had only one stock trading at more than $30,000 a share, and ETFs were in their infancy.
In 1995, Philadelphia politician Sam Katz drafted paperwork to create a unit investment trust, a fund-like vehicle that buys a fixed portfolio of stocks and bonds upfront and holds the securities for a set period of time. Submitted. He wrote that the trust provides “convenient and affordable access to Berkshire Hathaway's common stock without the need to own all of the stock.”
Katz said in an interview that Berkshire threatened to put the trust out of business by doing a stock split, creating its own trust or creating a second share class.
Buffett took advantage of the last threat by issuing Class B shares worth one-thirtieth of Class A shares. Investors flocked to new stocks, making trusts like Mr. Katz's obsolete.
In a 1996 letter to shareholders, Buffett warned that such trusts were an “expensive” way for brokers to market “en masse to unskilled buyers” in order to earn large commissions. That would leave Berkshire burdened with “both hundreds of thousands of unfortunate indirect owners (i.e., trustees) and a tarnished reputation.”
Katz said he has no regrets. “How many guys do you know who can compete with Warren Buffett?”
–With assistance from Alexandre Rajbhandari and Sid Verma.
