Warren Buffett’s Berkshire Hathaway regained its ranking as the favorite stock pick among U.S. and Canadian multimillionaires, beating Apple and fending off the increasing preference for exchange-traded funds.
Members of Tiger 21, a New York-based group of wealthy investors, selected Berkshire in an annual survey of preferred investments scheduled to be released today. Apple, which had held the No. 1 spot the last two years, slipped to No. 2.
“The bloom is off of Apple,” Michael Sonnenfeldt, founder and chairman of Tiger 21, said in an interview. “For people who held Berkshire Hathaway it’s held its appeal, but for Apple, a lot of people who were on that ride have realized that perhaps the best days are behind it.”
Apple’s share price has fallen by more than one-fourth from its September 2012 record high as the Cupertino, California- based company battles lower-cost rivals and seeks to prove it can innovate without co-founder Steve Jobs, who died in 2011. The Berkshire choice shows members’ satisfaction with Buffett’s investing strategy even as the 83-year-old chief executive officer won’t publicly identify a successor.
Qualcomm Inc., the biggest maker of chips for mobile phones, was the other individual stock among members’ top five. The San Diego-based company surged to No. 4 from No. 20 last year. The top five included two ETFs for the first time: The iShares MSCI EAFE Index Fund was No. 3 and the SPDR S&P 500 ETF Trust ranked No. 5.
Berkshire, based in Omaha, Nebraska, soared in its first 25 years under Buffett as the billionaire transformed a textile maker into an insurer and placed winning bets on stocks such as Capital Cities/ABC Inc. and Coca-Cola Co. More recently, he’s expanded by buying whole companies such as railroad Burlington Northern Santa Fe.
Berkshire has risen 31% this year, compared with a 22% gain in the Standard & Poor’s 500 Index. The stock had dropped to No. 3 in last year’s survey after being No. 2 in 2011 and No. 1 in 2010.
Tiger 21 is a network of 220 entrepreneurs, investors and executives who have at least $10 million in investable assets each and more than $20 billion combined. Members, whose average age is 55, meet monthly in seven cities in the U.S. and four in Canada to share ideas. They pay annual membership fees of $30,000.
Members had, on average, 24% of assets in stocks, 21% in real estate, 19% in private equity, 15% in fixed income, 11% in cash, 8% in hedge funds, 1% in commodities and 1% in miscellaneous investments as of Sept. 30, according to a separate report from the group.
Qualcomm has benefited as growing demand for smartphones lifts sales. The stock has gained 11% this year, trailing the 32% surge by the Philadelphia Semiconductor Index. Some investors have sold because of concern that revenue growth, which has averaged almost 30% each quarter this year, won’t translate into profit as the company faces more competition in emerging markets.
Members’ preference for low-cost ETFs, which are linked to indexes and trade like stocks, has increased because active fund managers usually don’t beat the market after fees over time, Sonnenfeldt said.
The SPDR S&P 500 ETF, known as the SPY, last year became the first ETF among members’ top five picks, ranking No. 2. The security tracks the U.S. benchmark index and is offered by Boston-based State Street Corp. New York-based BlackRock Inc.’s iShares MSCI EAFE ETF, which tracks equities in Europe, Australasia and the Far East, joined the list’s leaders for the first time this year.
U.S.-based ETFs attracted an estimated $33.6 billion in September, compared with $2.5 billion flowing into U.S. open-end mutual funds, according to Chicago-based researcher Morningstar Inc. ETFs charge an average 0.67% annual fee, compared with 1.26% for the typical mutual fund, Morningstar data show.
Tiger 21 also asked members their preferred asset class. About 41% chose public equities, followed by private equity and hedge funds, which both got 17% of the votes. Hedge-fund preference declined in the past two surveys while private equity gained favor.
The private-equity asset allocation is the highest in a decade, Sonnenfeldt said. The increase is driven more by direct investments members are making in closely held companies rather than commitments to private-equity funds, he said.
Investors are losing money on an inflation-adjusted basis in safe assets such government bonds and cash, which is causing them to take more risks to preserve spending power, Sonnenfeldt said. They’re choosing investments they know, such as startups and small businesses, he said. Most Tiger 21 members have become wealthy by building a company rather than through an inheritance.
Members listed Chickasaw Capital Management, based in Memphis, Tenn., and New York-based Neuberger Berman Group’s Rachlin Group as two of their favorite money managers. Both invest in income-producing master limited partnerships.
Tiger 21’s survey was based on responses from more than 70 members collected in May through July.
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