NEW YORK (
) -- Friday, Feb. 12, 2010, will forever be known as the wedding day for the long-anticipated marriage between
and the most famous U.S. equity index. At the close of trading Friday, Berkshire Hathaway will be added to the S&P 500 Index, as well as the S&P 100 Index.
There is approximately $1 trillion in index fund assets mirroring the S&P 500.
During the lead-up to Berkshire Hathaway's addition to the famed U.S. equity benchmark, trading had been fierce in Berkshire Hathaway B shares.
Keefe, Bruyette & Woods estimates that 177 million shares of Berkshire Hathaway will need to be bought by the index funds by the close on Friday. At midday Friday, the trading in Berkshire B shares was fast and furious, with 18 million shares traded, versus what has been an average day's worth of trading at 8 million shares of Berkshire Hathaway during the first few weeks since the 50-to-1 stock split in the B shares.
The 177 million shares that KBW is predicting will need to be purchased by S&P 500 index funds amounts to $13 billion, or what KBW estimates as 15 times normal volume for Berkshire.
Index fund experts say that many of the big index funds have already been buying up Berkshire shares, as most of the big index funds don't have restrictions on buying a stock ahead of its effective date of being added to an index.
There is good reason for index funds to not be precluded from buying Berkshire Hathaway shares ahead of the effective date for its S&P inclusion on Friday.
KBW research estimates that from Jan. 20 through Feb. 11, 212.5 million shares of the Berkshire B shares were traded, implying that about 150 million shares traded in excess of Berkshire Hathaway's average daily trading volume over these 17 trading days.
KBW estimates that 95%, or about 142 million of these excess shares were traded by index arbitrageurs, in anticipation of the pending S&P500 inclusion and demand from S&P 500 index funds.
Warren Buffett has been busy conducting his own buying of late;
Berkshire Hathaway revealed in a regulatory filing that it is now the biggest shareholder of reinsurer Munich Re, with a 5% stake that after option exercises, could reach as high as 7%.
Berkshire's shares have risen in value significantly since news first broke in late January that the Warren Buffett investment company would be added to the S&P 500. At the time of the stock split, Berkshire Hathaway's B shares were trading at $68. At Friday midday, Berkshire Hathaway B shares were just under $77, about a $1 below the 52-week high of $78 that Berkshire recently attained.
52-week high of $78 for Berkshire Hathaway was the fourth 52-week high for the Warren Buffett stock in the past month.
Any S&P 500 Index fund investor should hope their fund was out ahead of this share rise in gaining its fund exposure to Berkshire Hathaway. While long-term value in Berkshire is not questioned by many market participants, buying the Berkshire Hathaway B shares at $68 was a better deal for index funds than buying at $78, especially when the index funds have to buy 177 million shares of Buffett.
-- Reported by Eric Rosenbaum in New York.
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