Warren Buffett created Berkshire Hathaway’s Class B shares nearly 30 years ago to thwart managers seeking to split the conglomerate’s high-priced shares. Now, one of South Korea’s largest retail brokerages plans to package these Class B shares in a derivatives-boosted exchange-traded fund (ETF), something Buffett probably won’t like.
Kiwoom Securities has partnered with Milwaukee-based Tidal Investments to create an ETF designed to deliver 200% of Berkshire’s daily performance, according to a regulatory filing. Single-stock ETFs like this one are gaining ground in the fund market, using leverage to amplify the potential returns — and losses — of high-performing companies like Nvidia and Tesla. In South Korea, brokerages such as Toss Securities and Mirae Asset Securities are seeking to capitalize on growing demand for U.S. stocks as the domestic market performs weakly.
“Traditionally in leveraged ETFs, most of the interest and asset flow has been in more volatile names,” said Gavin Filmore, Tidal’s chief revenue officer, in an interview. “Berkshire is almost the extreme opposite of that.”
Leveraged ETFs are generally intended for active traders who want to bet on a stock’s performance for no more than a single day, as these funds typically tend to veer off course when tracking stocks over a longer period of time. Berkshire’s use of derivatives to boost returns may not sit well with Buffett, who once called such instruments “financial weapons of mass destruction.”
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Although Buffett’s company is widely known, it is still unclear whether day traders will be interested in a stock as stable as this within a leveraged strategy. Buffett is known as the quintessential long-term investor, who advises people to own stocks that they would feel comfortable holding for years.
Buffett, 94, and his company already have a significant following in South Korea. As of Nov. 8, South Korean individual investors held more than $800 million in Berkshire’s Class A and Class B shares, according to with data compiled by the Korea Securities Depository.
“Asian markets have a soft spot for Berkshire,” said Matthew Palazola, an insurance analyst at Bloomberg Intelligence.
The ETF’s registration has not yet been finalized, and Kiwoom is awaiting approval from the Korea Financial Supervisory Service, the country’s regulatory body, Kiwoom said in response to a Bloomberg query. Berkshire representatives did not respond to requests for comment.
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Retail investors in South Korea have embraced some of the largest U.S.-listed leveraged ETFs. The Direxion Daily TSLA Bull 2X Shares, a single-stock focused ETF for Tesla shares, received $225 million from South Korean investors this year alone, bringing their total holding in the ETF to $1.2 billion as of Aug. 8. November, according to data from the Korea Securities Depository.
While the Kick BRK 2X Long Daily Target, as it is known, is Berkshire’s first single-stock ETF in the U.S., several others are already traded abroad. However, they have failed to gain much from their following: Leverage Shares 2x Long Berkshire Hathaway ETP Securities, traded on several European exchanges, only has about $2.3 million in assets.
Kiwoom’s new ETF would buy Berkshire’s Class B shares and then issue its own shares to investors, potentially at a much lower price than the $467.36 each Class B share sold for at market close in Monday. To amplify its exposure to Berkshire’s daily returns, the ETF will enter into swaps with brokers and also trade listed options on the Omaha, Nebraska-based company’s Class B shares.
The Berkshire ETF would be a Kiwoom product, managed behind the scenes by Tidal in exchange for a portion of management fees.
