Meet the Warren Buffett ETF That Turned $10,000 Into Over $233,000

Warren Buffett sometimes says he's a "business-picker" and not a stock-picker. He's right, of course. However, the legendary investor doesn't always pick individual businesses. Sometimes, Buffett picks a large basket of businesses.

I'm referring to the exchange-traded funds (ETFs) in Berkshire Hathaway's portfolio. Buffett's ETFs have been big winners over the years. One of them even turned $10,000 into over $233,000.

Buffett's biggest moneymaking ETF

Buffett doesn't get very creative when selecting ETFs for Berkshire's portfolio. The conglomerate owns only two funds -- and they're nearly identical.

Berkshire owns 39,400 shares of the SPDR S&P 500 ETF Trust (NYSEMKT: SPY), which is currently valued at nearly $22.6 billion. It also owns 43,000 shares of the Vanguard S&P 500 ETF (NYSEMKT: VOO), valued at nearly $22.7 billion.

Both ETFs attempt to track the performance of the S&P 500. Unsurprisingly, their holdings are nearly identical, with only minor differences in how much each stock makes up as a total percentage of assets.

Buffett bought these two S&P 500 ETFs in the fourth quarter of 2019. However, they were both racking up solid gains well before then. The SPDR S&P 500 ETF Trust has been the bigger winner because it was created much earlier than the Vanguard S&P 500 ETF. An initial investment of $10,000 when the SPDR S&P 500 ETF Trust launched in January 1993 would be worth roughly $233,320 today. That translates to an average annual return of nearly 10.5%.

Five secrets to this ETF's success

The first and most important secret to success for the SPDR S&P 500 ETF is time. That's also the most important factor in Buffett's investing success, by the way. Consider that a $10,000 investment in the Vanguard S&P 500 ETF at its inception in September 2010 would be worth close to $68,000. Time is the key reason this total is much lower than the over $233,000 you'd have from investing in the SPDR ETF.

Another critical element of the SPDR S&P 500 ETF's performance is diversification. The fund owns shares of 500 companies that span multiple sectors and industries.

The third success factor of the ETF is its regular rebalancing. Stocks are frequently added and dropped from the fund's portfolio. The winners stay in while the losers are eliminated. This survival-of-the-fittest aspect of an S&P 500 index ETF is enormously important.

Dividends also play a huge role in the SPDR S&P 500 ETF's total returns. Without dividends reinvested, the initial investment of $10,000 would be worth around $130,560. That's not a bad return, but it's a lot less than $233,000.