One of south korea's largest retail brokerages is currently planning to package Berkshire Hathaway's class B shares (BRK.B.US) into an Exchange-Traded Fund (ETF) amplified through derivatives, but this may not be a move favored by Buffett. A regulatory document shows that Kiwoom Securities Co. has partnered with Tidal Investments based in Milwaukee to establish an ETF aiming to provide twice the daily performance of Berkshire.

Nearly 30 years ago, Warren Buffett founded Berkshire Hathaway's class B shares to prevent fund managers from trying to split the shares of this high-priced conglomerate.

Such single-stock ETFs have already swept the entire fund industry, leveraging the potential returns and losses of companies like Nvidia (NVDA.US) and Tesla (TSLA.US). In South Korea, securities firms like Toss Securities and Mirae Asset Securities Co. have been seeking to profit from the increasing demand for U.S. stocks amid the lackluster performance of the Korean stock market.

Gavin Filmore, Chief Revenue Officer of Tidal, said in an interview: "Traditionally, in leveraged ETFs, most of the interest and asset flows are concentrated in ETFs with higher volatility. Berkshire is almost the complete opposite."

Leveraged ETFs are typically designed for active traders who bet on the performance of a stock not exceeding one day, as these funds tend to deviate from the track when tracking stocks for longer periods. But Buffett may not like to enhance Berkshire's returns through derivatives, as he has called it a "financial weapon of mass destruction".

While Buffett's company has a good reputation, it remains to be seen whether short-term traders are interested in using such a leveraged strategy to control a stable stock. Buffett is known as the ultimate long-term investor, always advising people to hold stocks that they can confidently hold for many years.

The 94-year-old Buffett and his company already have a following in South Korea. According to data compiled by the Korea Securities Depository, as of November 8, South Korean individual investors hold Berkshire's class A and B shares worth over 0.8 billion U.S. dollars.

Matthew Palazola, an insurance analyst at Bloomberg Intelligence, said that the Asian market is "favorable to Berkshire Hathaway".

A representative from Kiwoom declined to comment. Representatives from Berkshire Hathaway did not respond to requests for comment.

South Korean retail investors have embraced some large leveraged ETFs listed in the USA. Custodial data shows that the Direxion Daily TSLA Bull 2X Shares ETF, focusing on Tesla stock, has received $0.225 billion in investments from South Korean retail investors so far this year, with total holdings of this ETF reaching $1.2 billion as of November 8.

The Kick BRK 2X Long Daily Target will be Berkshire Hathaway's first single-stock ETF in the USA, with several other ETFs also trading overseas. Despite this, these ETFs have not gained many followers: the Leverage Shares 2x Long Berkshire Hathaway ETP trades on several European exchanges but only has about $2.3 million in assets.

Kiwoom's new ETF will purchase Berkshire Hathaway Class B shares and then issue its own shares to investors, potentially at a price much lower than the $467.36 per Class B share at Monday's close. To increase exposure to Berkshire's daily gains, this ETF will enter into derivative agreements with brokerage firms and trade listed options on Berkshire Hathaway Class B shares. The Berkshire Hathaway ETF will be one of Kiwoom's products, operated behind the scenes by Tidal in exchange for a portion of the management fee.

Tarnished reputation

Wall Street's creation of early single-stock funds for Berkshire Hathaway shares prompted Buffett to create the company's Class B shares nearly 30 years ago. At that time, Berkshire Hathaway's trading price exceeded $0.03 million per share for its Class A stock, and ETFs were still in their infancy.

In 1995, Philadelphia political figure Sam Katz submitted documents to create a unit investment trust, a fund-like tool that can pre-purchase fixed stock and bond combinations, and then hold these securities for a period of time. He wrote that the trust would provide "convenient and affordable Berkshire Hathaway common stock without owning the full shares."

In an interview, Katz stated that Berkshire threatened to bankrupt the trust by splitting stocks, establishing its own trust, or creating a second category of stock. Buffett fulfilled the final threat by issuing B shares equivalent to 1/30 of A shares. Investors flocked to this new stock, making Katz's type of trust company obsolete.

In a letter to shareholders in 1996, Buffett warned that such trusts were 'a heavy burden of costs' that brokers would 'heavily market to immature buyers' to earn high commissions. This would bring 'hundreds of thousands of dissatisfied indirect owners (i.e., trust holders) and damaged reputation' to Berkshire.

Katz said he has no regrets: 'How many people have the opportunity to compete with Warren Buffett?'

Editor/new