A New Way to Ride the Rails

Last week, Warren Buffett’s Berkshire (BRK.A) announced that it raised its investment stake to 18.2% in the second largest domestic railroad, Burlington Northern Santa Fe (BNI). At Berkshire’s annual meeting last year, Buffett and vice chairman Charlie Munger discussed their investment interest in railroads since the industry is healthier today compared to past years. Berkshire previously invested in Norfolk Southern (NSC) and Union Pacific (UNP), but has since reduced its position in those names in favor of Burlington Northern.

Anyone interested in the railroads as an investment should read fellow Seeking Alpha blogger and research analyst David Silver’s take on the industry for 2008, which is optimistic despite economic concerns and the threat of a recession.

My proposed Global Railroad ETF includes 29 stocks from worldwide markets with a minimum market cap of $300 million and includes companies from the United States, Canada, Europe, and Asia. The top two performing railroads over the past 52-weeks in my index were both based in China, including Daqin Railway (up over 100%) and China Railway (up over 80%). My fund produced returns over the past 52 weeks of 14.9%, which includes an average dividend yield of 1.2% for the group. CSX (CSX) was the best performing domestic railroad in the fund, producing a 30% return in the last year, including dividends. Rather than trying to pick individual stocks in the railroad industry, my Global Railroad ETF would provide investors with a single investment vehicle that is globally diversified and leveraged to fast-growing economies such as China, while still providing exposure to the well-known domestic companies.

Disclosure: none