In a move that may raise eyebrows at Berkshire Hathaway, Kiwoom Securities Co. has partnered with Milwaukee-based Tidal Investments to launch a new exchange-traded fund (ETF) designed to deliver 200% of Berkshire Hathaway’s daily performance. The ETF, which uses derivatives to amplify returns, marks the latest development in the growing trend of single-stock leveraged ETFs, products that have been gaining traction worldwide but may not align with Warren Buffett’s philosophy.
Kiwoom’s new ETF will track Berkshire Hathaway Class B shares, leveraging swaps and options to provide twice the daily return of the stock. The fund’s design taps into a rising demand in South Korea for U.S. equities, as local investors seek to capitalize on the performance of high-profile stocks like Tesla and Nvidia, which have been popular in leveraged ETFs. According to a regulatory filing, the ETF aims to meet investor interest in U.S. equities, particularly as domestic South Korean stocks have struggled to perform.
Gavin Filmore, Chief Revenue Officer at Tidal Investments, acknowledged the appeal of more volatile stocks for leveraged ETFs but noted that Berkshire Hathaway is a stark contrast. “Traditionally, the lion’s share of interest has been in more volatile names,” Filmore said, adding that Berkshire’s steady growth makes it an unusual candidate for such a strategy.
Leveraged ETFs, which amplify stock returns (and risks), are generally aimed at active traders looking for short-term gains. These products often diverge from their targets over extended periods, making them unsuitable for long-term investors. The inclusion of derivatives in the Kiwoom ETF to “turbocharge” Berkshire’s returns could further stir unease for Buffett, who has famously criticized derivatives as “financial weapons of mass destruction.”
Berkshire Hathaway, under Buffett’s stewardship, has been a hallmark of long-term investing. Buffett himself has advised investors to buy stocks they are comfortable holding for years, a philosophy that stands in stark contrast to the speculative nature of leveraged ETFs. Despite this, the ETF has already garnered interest, as individual South Korean investors have shown strong demand for Berkshire shares. As of November 8, South Koreans held over $800 million worth of Berkshire’s Class A and Class B shares, according to data from the Korea Securities Depository.
In Asia, Berkshire Hathaway has long enjoyed a strong following. “Asian markets have a penchant for Berkshire,” noted Matthew Palazola, an analyst at Bloomberg Intelligence, highlighting the company’s enduring appeal.
Kiwoom’s new ETF would be the first of its kind in the U.S. but follows a handful of similar products listed abroad. However, these foreign ETFs have not seen much success. For example, the Leverage Shares 2x Long Berkshire Hathaway ETP on European exchanges has only accumulated about $2.3 million in assets.
The structure of Kiwoom’s ETF involves purchasing Berkshire Hathaway Class B shares and issuing its own stock to investors at a lower price than the current market value of $467.36 per share. To leverage exposure, the ETF will use swaps with broker-dealers and trade options on Berkshire’s B shares. Kiwoom will manage the ETF, with Tidal running the operations behind the scenes in exchange for a share of the management fees.
Buffett’s decision to create Class B shares nearly three decades ago was partly spurred by similar efforts to launch investment vehicles that would allow smaller investors to buy into Berkshire Hathaway at a lower price. In 1995, political figure Sam Katz proposed a unit investment trust that would give people access to Berkshire stock without needing to buy the high-priced Class A shares. In response, Buffett created Class B shares, priced at 1/30th the value of Class A shares, effectively rendering Katz’s trust obsolete.
At the time, Buffett warned that such vehicles were “expense-laden” and could be marketed to unsophisticated investors. He expressed concern that these products could harm Berkshire’s reputation and create a large group of indirect, unhappy shareholders. Katz, however, remains unphased by the battle, saying, “How many guys do you know who get to do battle with Warren Buffett?”
As Kiwoom’s ETF gets set to debut, it remains to be seen how Buffett and other long-term investors will respond to this latest attempt to leverage Berkshire’s steady growth for short-term gains. For now, the move underscores the growing global demand for U.S. stocks, even as it challenges Buffett’s own approach to investing.
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