You Might Be Going All-In On Stocks, But Buffett, Soros, And Elliott Haven’t Been

Retail investors may be diving headlong into stocks this year, but with as many signals pointing up as down in the market, you might be tempted to break from the pack and spread your money around to other assets. I took a look at the latest “13F” regulatory filings to see what notable trades Elliott Investment Management, Soros Fund Management, and Warren Buffett’s Berkshire Hathaway have been making. And these three giants may give you some ideas…

So, what were Elliott and Soros investing in?

Now, these filings don’t tell us the whole story: because they’re watched by the Securities and Exchange Commission, they only track US-listed stocks and ETFs. Still, they do give you a sense of where the “big money” has moved over a given quarter.

And one place is corporate bond ETFs. Elliott and Soros both disclosed new positions in corporate bond ETFs. And there’s a good reason for that: higher interest rates have made the yields on these assets a lot more attractive.

The Soros fund bought about $255 million worth of the iShares iBoxx $ Investment Grade Corporate Bond ETF (ticker: LQD; expense ratio: 0.14%) in the final three months of last year. And, Elliott, which already owned about $234 million in that ETF (about 2.7% of its US portfolio), invested roughly $500 million in a higher-risk bond ETF, the iShares iBoxx High Yield Corporate Bond ETF (HYG; 0.48%).

iShares iBoxx $ Investment Grade Corporate Bond ETF (white line) and the iShares iBoxx High Yield Corporate Bond ETF (blue line). Source: Bloomberg.

Both ETFs have rallied from their fourth-quarter lows, as expectations grew for softer inflation, a peak in interest rates, and a soft landing. However, recent economic data in the US has changed the story – and investors now expect inflation to be more stubborn and see the Federal Reserve (the Fed) raising interest rates even higher. And that’s led to a slide in the prices of the two ETFs. LQD provides a 5.46% annual yield, and HYG an 8.5%, but you might want to tread cautiously – higher rates could pressure the prices of both ETFs lower.

So, how can you take advantage?

If, like a lot of people, you think interest rates are going to move higher (or at least stay higher for longer), you may want to consider buying very short-term bond ETFs instead. The Blackrock Ultra Short-Term Bond ETF (ICSH; 0.08%) invests in bonds with an average maturity of less than six months. The iShares 0-3 Month Treasury Bond ETF (SGOV; 0.05%) invests only in US Treasury bonds that mature in under three months. Both currently offer a 4.7% annual yield – not bad and certainly better than the roughly 4% you’d get on your cash from even the most generous savings account out there.

Plus, as you can see in the chart, corporate bond ETFs fell in 2022, but both of these ETFs performed well. That’s because they don’t have exposure to long-dated bonds, which tend to be more sensitive to interest rate swings.

The iShares 0-3 Month Treasury Bond ETF (orange line) and Blackrock Ultra Short-Term Bond ETF (purple line). Source: Bloomberg.

Now, the 13Fs don’t tell us whether Soros, Elliott, or the others are investing in individual bonds – they only track stocks and ETFs. But you could consider adding individual corporate bonds to your portfolio. Fidelity, for example, provides a huge range that allows you to choose the maturity date that suits your needs, potentially limiting your risk.

OK, but what did Warren Buffett do last quarter?

Buffett’s moves are always worth a close look. And Berkshire Hathaway’s 13F shows it had a relatively quiet quarter, after snapping up $66 billion in stocks in the first nine months of the year. While it increased its positions in Apple, Louisiana Pacific, and Paramount Global, it shrank its positions in some financial stocks, including US Bancorp and Bank of New York Mellon. The big surprise was that it sold about 80% of its position in Taiwan Semiconductor Manufacturing Company (TSMC), which it had only just bought in the previous quarter.

So, how can you take advantage?

I think the main takeaway from Berkshire’s activity in late 2022 goes back to one of Buffett’s famous adages: “be fearful when others are greedy, and greedy when others are fearful”. If Berkshire didn’t see fit to add to its holdings last quarter, that may be a signal to be more cautious. If you see investors turning a bit greedy, it might make sense to consider buying corporate bonds – or Berkshire Hathaway’s stock.