Is Warren Buffett's Berkshire Hathaway Now the Ultimate Hedge Against the S&P 500 Index?

Stocks have gotten off to a less-than-ideal start to the year. The benchmark S&P 500 is down nearly 4% as I write this and has fallen more than 8% since Feb. 19, as concerns about economic growth and President Donald Trump's trade war have sent stocks on the retreat.

However, Warren Buffett's Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) has done the opposite. The two classes of shares have roared over 16% higher so far this year, hitting new all-time peaks. After a cautious year for Berkshire in 2024, Buffett and his team look like they played the market recently, and investors seem to be paying attention.

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Is Berkshire Hathaway now the ultimate hedge against the S&P 500?

A flight to safety

The great thing about Berkshire is that it's one of the largest conglomerates in the world, so when you invest in it, you get a little bit of everything. It operates large businesses in the energy, railroad, mortgage, and insurance sectors. It also oversees a roughly $281 billion equities portfolio with stocks in every sector, including Apple, Bank of America, Occidental Petroleum, and Coca-Cola.

In recent years, Berkshire has stockpiled cash like never before. At the end of 2024, it had amassed over $330 billion in cash and short-term Treasury bills. The diversity of its businesses, the strength of the stocks it holds, the incredible cash pile, and a strong leadership team have led investors to view the conglomerate as a flight to safety.

Berkshire has now beaten the broader market in three of the last four years, as volatility has raged. The stock has even performed similarly to gold, which has been on an incredible run of its own.

^SPX data by YCharts

There has been another impressive trend in its GEICO insurance business. In 2024, Berkshire reported insurance underwriting income of more than $9 billion and insurance investment income of over $13.6 billion, compared to roughly $5.4 billion and about $9.6 billion, respectively, in 2023.

In his annual letter to shareholders last month, Buffett credited Berkshire leaders like Todd Combs and Ajit Jain for transforming its core business over the past five years and making it the juggernaut it is today.

The insurance business as a whole has come under scrutiny in recent years due to its difficulty in pricing certain events and natural disasters like wildfires. But Buffett wrote that there has never been more economic risk than there is today, which fuels the insurance business and also makes Berkshire's sheer size an advantage as long as its underwriting is done prudently:

No private insurer has the willingness to take on the amount of risk that Berkshire can provide. At times, this advantage can be important. But we also need to shrink when prices are inadequate. We must never write inadequately priced policies in order to stay in the game. That policy is corporate suicide.

A moat like no other

What Buffett, his late partner Charlie Munger, and the rest of the Berkshire team have built is unlikely to ever be replicated, giving it arguably one of the strongest moats of any publicly traded company.

Berkshire operates several businesses with significant scale and earnings power in different sectors, and its huge stock portfolio likewise provides broad exposure to various sectors. And its cash pile is massive.

And let's not forget about the leadership team, which looks more than able to carry the torch once Buffett is no longer with the company.

It makes perfect sense that Berkshire has become the ultimate hedge to the S&P 500. The index has become overly concentrated in a few high-flying artificial intelligence stocks, while Berkshire runs many diverse businesses. However, Berkshire also has exposure to companies in the S&P 500 and businesses that perform well in a bull market, making it a great place to park cash through an entire economic cycle.

I would only expect this to continue, as Berkshire keeps on deploying its capital prudently and doesn't pursue risk like others in a bull market.

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Bank of America is an advertising partner of Motley Fool Money. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Bank of America, and Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.