Buffett reduced his stake in Johnson and Johnson by 54% and Procter and Gamble by 9%. These stocks have weathered the downturn better than most of the market and are therefore the one of the most recommended stocks in the markets for conservative investors. These are also quintessential American companies. Jim Cramer suggests that Buffett is selling American at the time when he is calling other investors to buy American. I think this is quite harsh and spoken by someone who does not understand what value investing is all about.

Frankly, value investing opportunities abound in this market and there are many stock investments that Buffett may find that offer much better value than these two stocks. For example, Buffett is sort of becoming a lender of second resort, scooping up debt or preferreds in companies like Goldman Sachs, General Electric, Swiss Re, Tiffany, and others. These instruments yield 10% or more and are relatively safe. Wouldn’t we all want to get a low risk 10% return in this market while we wait to determine our next investments? By the time the markets return to a semblance of normalcy, these convertibles would have risen in value (or declined in yield), offering Buffett better returns than the 10% coupon that he locked in.

Buffett also held onto his stake in Wells Fargo and American Express while his stake in US Bancorp declined by 7%. While these holdings have experienced significant losses, his belief in long term business potential of these names remain strong.

Buffett also increased his holdings of Ingersoll Rand, Eaton Corp and NRG. This would make sense if you believe that infrastructure spending is about to get a boost with the stimulus package while his holdings of Conoco Phillips, Carmax, and United Healthcare declined.

It appears that there is a theme running through his investment moves and some of these could be ascribed to macro conditions. He has been lightening up on health care names probably in response to the new administrations focus on ‘health care reform’. He has also loaded up or kept his stake in industrial names, probably due to the stimulus plans. Finally, he seems to be confident of the US financial sector’s ability to pull through.

Typically, a value investor eschews macro trends and favors company specific fundamentals. But Buffett has never been (atleast for a long time) a strict value investor in the Graham and Dodd mold although a bulk of his investing is inspired by them.

In a related news, Bruce Berkowitz of Fairholme fund has cut down his stake in Berkshire Hathaway to almost nothing, noting that Berkshire portfolio is now too large and the managers are ageing.

Wrote Berkowitz in his annual letter to the shareholders:

As the crowd sold, we bought common stocks of essential health care, defense, and infrastructure-related companies

He has added new positions in Humana and American Express, increased his positions in Leucadia, Boeing, Canada Natural Resources, Northrop Grumman, and Wellpoint. He trimmed his stake in Pfizer.

Looks like Buffett and Berkowitz are diverging a bit on health care.

There were very few options to invest in Indian companies. Few Open ended mutual funds did exist (Eaton Vance (ETGIX) and the excellent Matthews India (MINDX) that came later). There were also a few close-ended funds (India Fund (IFN) and Morgan Stanley India Investment Fund (IIF)) but the expense ratios were always on the high side

My issues with all these options were that they were invariably overloaded with IT and Software names. While this industry has been the driver behind India’s past growth, I believed that the future growth in India will likely come from more basic industries such as materials, steel, cement, banking, communications, etc. Industries that are core to what can be the largest national infrastructure buildout (along with China) in the next decade or so

It has been a long time coming. Two new ETFs were launched recently that track indexes (separate and proprietary) based upon local Indian stocks on NSE and BSE exchanges. The expense ratios are also more reasonable now. The following is a brief introduction to these two ETFs. (If you are interested in these, please be sure to hope on to the respective sites and peruse the prospectii. A few links are provided for your dd pleasure)

1. Wisdom Tree India Earnings Fund (EPI) based on Wisdom Tree India Earnings Index

The fund tracks a proprietary index composed of profitable Indian companies weighted by Earnings. The index currently holds about 150 companies and therefore is well diversified. The expense ratio is a reasonable 0.88% and the top holdings and sector weightings are more to my liking

The fund started trading on NYSE ARCA in late February. Today’s quote is 23.94 and the NAV is around 23.4. It therefore trades at a slight premium to NAV

More Information about the fund is at the Wisdomtree site

More information about the index is here

2. Powershares India Portfolio (PIN) based on Indus India Index

This fund tracks a proprietary index based on the 50 largest companies in India and is market capitalization weighted. The expense ratio is 0.78% (besting the Wisdomtree ETF by 10 basis points) and its top 10 holdings are pretty similar to EPI (although the weightings are different)

The fund started trading today. The offer price was 25

More information on the Powershare fund can be had here

My take: I personally prefer the Wisdometree ETF despite its slightly higher expense ratio. First of all, its average PE ratio is about 17 compared to about 20 for PIN and about 27 for the Indian stocks as a whole. Secondly, EPI is more diversified across multi-caps and gives an exposure to the small and medium cap companies in India, which is where a lot of growth will occur. PIN has minimal small cap exposure and is not likely to have one based on how it index is constructed

A word of caution: These ETFs are very recent and it is generally wise to wait for sometime before buying into them. If you buy too early, you may end up paying a good premium to the NAV

Another word of caution: Investing in foreign markets is more risky than investing domestically (but than it is the same thing they tell you in India if you want to invest in American stocks …). Also you will be exposed to the currency fluctuations (which if you ask me is probably a good thing since I do expect the Indian Rupee to continue to strengthen against USD for the foreseeable future). There may be less transparency in the company financials in emerging markets (you know, as opposed to , let’s say, in US, assuming you ignore the current events here in the States). Etc, Etc.

Typically I avoid funds, instead choosing to buy individual stocks. However, I will make an exception here as these ETFs still remain the best way to buy into the Indian markets