Assessing ETFs That Claim to Replicate Warren Buffett's Strategy

Warren Buffett's legendary returns stem from a disciplined focus on businesses with durable competitive advantages and high returns on capital. He often describes these advantages as "economic moats"-a unique edge that protects a company's profits from rivals over the long term. This philosophy, applied to a concentrated portfolio of high-quality companies, has driven Berkshire Hathaway's 20 percent annual return over six decades. Yet the ETFs claiming to replicate him follow a different playbook entirely.

The most direct replication, using Berkshire's own 13F filings, is inherently backward-looking and lags actual decisions. More importantly, it contrasts sharply with Buffett's own personal investing. While his public company is a concentrated bet on moats, his personal portfolio is a low-cost, diversified ETF strategy. Evidence shows he holds iShares Core MSCI EA (IEFA), Vanguard High Dividend Yield Index Fund ETF (VYM), and iShares Core MSCI International Developed Markets ETF (IDEV) through a separate portfolio managed by a Berkshire subsidiary. This setup is the opposite of his famous concentrated bets.

The ETFs marketed as "Buffett-inspired" often cherry-pick specific aspects of his philosophy. For instance, the VanEck Morningstar Wide Moat ETF aims to capture companies with sustainable advantages, while the iShares MSCI USA Quality Factor ETF targets high returns with low debt. These funds are rules-based, diversified, and actively managed, which is a far cry from Buffett's patient, concentrated, and often passive approach to his core holdings. The bottom line is that these ETFs are convenient tools for investors, but they are not a true replication of the master's method. They are, in essence, a modern, diversified interpretation of a few of his principles.

Deconstructing the Mechanics: The Case of OMAH and Others

The mechanics of these "Buffett-inspired" ETFs reveal a significant departure from the master's own approach. Take the VistaShares Target 15™ Berkshire Select Income ETF (OMAH), launched less than a year ago. Its structure is a two-part system: first, it holds a portfolio of equity securities based on the top 20 publicly traded companies Berkshire owns, with weightings reset quarterly. Second, and more complexly, it uses an options overlay-specifically, covered calls-to generate monthly income for shareholders. This is a deliberate layer of active management, not the passive, long-term ownership that defines Buffett's strategy.

This added complexity comes with tangible costs. OMAH carries an expense ratio of 0.95%, a significant fee for a fund that is essentially a derivative of a derivative. More critically, the fund's income distribution is not what it seems. For its August 2025 payout, 24.08% was classified as a return of investor capital. This is not a sustainable yield; it is a return of the investor's own principal, which distorts the perceived income and can be misleading. True compounding, as Buffett practices it, is built on earnings reinvested, not distributions that draw down the capital base.

This pattern of using derivatives to generate income is not unique to OMAH. As senior MorningStar analyst Dan Sotiroff notes, a growing trend in ETF investing involves futures-based exposure and options overlays, mimicking hedge fund strategies. These tools add layers of cost and risk that are absent from Buffett's straightforward, concentrated equity ownership. They introduce volatility from options pricing, counterparty risk, and the potential for significant losses if market moves against the position. Buffett's philosophy is one of clarity and simplicity: buy a wonderful business at a fair price and hold it for decades. The ETFs that claim to follow him often do so by adding sophisticated, costly machinery that the master himself would likely avoid.

Valuation and Long-Term Viability: The Moat Question

The central question for any investment is whether it possesses a durable competitive advantage-a wide economic moat-that can protect its value and drive compounding over decades. For these "Buffett-inspired" ETFs, the answer appears to be no. Their structure is inherently derivative and lacks the fundamental moat of a business. The underlying index for OMAH, the Solactive VistaShares Berkshire Select Index, is not publicly disclosed, making it impossible to assess the quality or consistency of its holdings. This opacity is a red flag; true moats are built on transparency and understanding of the underlying assets.

More broadly, the long-term track record of actively managed funds casts serious doubt on the viability of these strategies. The evidence shows a persistent challenge: the poor long-term track record of many active strategies. These ETFs are not passive index trackers. They involve active management through quarterly rebalancing based on stale 13F filings, plus the added layer of an options overlay. This combination of active decisions and complex derivatives is a recipe for higher costs and greater volatility, not a path to superior, sustainable returns.

The costs themselves are a direct threat to compounding. OMAH carries a steep expense ratio of 0.95%. While the exact cost of the options overlay is not disclosed, active management and derivatives typically increase fees. Over time, these expenses erode returns, making it harder for the fund to keep pace with its benchmark, let alone outperform it. True compounding, as Buffett demonstrates, is built on high returns with minimal friction. These funds introduce significant friction from the start.

The bottom line is that these ETFs are financial products built on a clever marketing premise, not a durable investment moat. They replicate a famous investor's past moves with a lag, layer on complex income-generating strategies, and charge a premium for it. For a value investor, the lack of a clear, sustainable advantage in the fund's own structure is a fundamental flaw. They may attract capital initially, but their long-term viability depends on a track record of outperformance that history suggests is unlikely to materialize.

Catalysts and Risks: What to Watch for the Thesis

The investment thesis for these "Buffett-inspired" ETFs hinges on a few key developments. The primary catalyst for validation would be the emergence of a clear, transparent, and low-cost index that accurately captures Buffett's current, evolving philosophy-not just a lagging snapshot of his past holdings. For now, the lack of a publicly disclosed, rules-based index for funds like OMAH creates a fundamental opacity that undermines the very moat it claims to track. If a provider were to launch such an index, backed by a credible methodology and low fees, it could shift the narrative from clever marketing to a legitimate, accessible vehicle for a piece of the master's approach.

The major risk, however, is that these funds become exactly what they are accused of being: clever marketing gimmicks that fail to deliver returns commensurate with their fees, especially in volatile markets. The evidence already shows a red flag in the distribution policy. For its August 2025 payout, 24.08% of OMAH's distribution was classified as a return of investor capital. This is a classic sign of a yield that is not sustainable from earnings. In a rising rate environment or during a market downturn, such a structure could quickly unravel, forcing the fund to cut its distribution or further erode the capital base. This directly threatens the compounding engine that Buffett champions.

Investors should monitor for any shift in the fund's strategy, particularly changes to the options overlay or the underlying index composition. The current model is a two-part system: a concentrated portfolio of stale Berkshire holdings plus an active options layer. If the fund were to simplify, perhaps by moving to a lower-cost, rules-based index without the complex overlay, it might align more closely with Buffett's own preference for simplicity and low cost. Conversely, any expansion of the "celebrity ETF" slate, as VistaShares has already begun, could dilute focus and increase marketing expenses.

Finally, watch for the emergence of a more authentic, low-cost alternative. The market is crowded with funds, and history shows a persistent challenge: the poor long-term track record of many active strategies. If a provider were to launch a low-fee, transparent ETF that simply tracks a basket of high-quality, high-return companies based on Buffett's stated principles-without the derivatives layer or the high expense ratio-it would directly compete with the current offerings. For a value investor, the path to a durable advantage is clarity and low cost. Until one of these funds can demonstrate that, the risk of being a costly gimmick remains high.