Warren Buffett-led Berkshire Hathaway achieved a new milestone in August, surpassing $1 trillion in market capitalization for the first time. Although Berkshire is renowned for its public equity investments in companies like Apple and Coca-Cola, the value of its other business segments is much higher. Berkshire's holdings in public companies are worth approximately $320 billion, compared to its $1.026 trillion total market cap. The company boasts an impressive portfolio covering property and casualty insurance, ownership of BNSF Railway, 92% ownership of Berkshire Hathaway Energy, and various manufacturing, service, and retail businesses.

Berkshire Hathaway has significant investments totaling $79.41 billion in Bank of America, American Express, Visa, and Mastercard. While buying Berkshire Hathaway stock offers exposure to these firms and Berkshire's private holdings, a simpler, perhaps more effective, way to invest in the financial sector is through an exchange-traded fund (ETF) like the Vanguard Financials ETF. Notably, Berkshire Hathaway stock is the fund's second-largest holding, with an 8.1% weighting.

The financial sector, the second most valuable sector behind technology, comprises 13.3% of the S&P 500. It includes a diverse range of industries: big banks, regional banks, investment banking, insurance providers, payment processors, financial exchanges, and more. Although the sector generally benefits from economic growth, not every part reacts to economic factors similarly. For example, higher interest rates can benefit banks by increasing their interest income, whereas credit card companies profit from the number of transactions and average transaction amount, favoring lower rates for higher spending.

Investment banks and venture capital firms may prefer lower capital costs to boost merger and acquisition activities, while insurance companies depend more on regulations than economic conditions. The financial sector comprises low-growth segments with cheap valuations and rising dividends, balanced by fast-growing companies that may pay smaller dividends and focus on business reinvestment. Diversification within the sector is crucial. For example, several regional banks failed in early 2023, highlighting the importance of not over-concentrating investments in a single niche.

American Express is one of Berkshire's best long-term performers, now its second most valuable position after Apple. The combined market cap of American Express, Visa, and Mastercard nearly matches that of the three largest U.S. banks—JPMorgan Chase, Bank of America, and Wells Fargo—highlighting the significance of payment processors in the financial sector.

The Vanguard Financials ETF offers diversification, low costs, and a blend of growth, income, and value stocks with an expense ratio of just 0.1%. Investors can get started with a minimum investment of $1. The ETF's 16.3 price-to-earnings (P/E) ratio and 1.8% yield are impressive, considering the fund's 20% year-to-date growth. The top 10 holdings in the ETF, which include JPMorgan Chase, Berkshire Hathaway, Mastercard, Visa, and Bank of America, account for 42% of the fund, providing balance and diversification.

For investors wanting baseline exposure to the financial sector, the Vanguard Financial Sector ETF is an attractive option. Some may choose to pair the ETF with individual stock holdings to increase exposure to promising companies like Visa, Mastercard, and American Express. The Vanguard Financial Sector ETF merits consideration for those looking to invest new capital without chasing high-valued, high-flying companies.