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Why has Warren Buffett and Berkshire Hathaway teamed up with Nubank?

Berkshire Hathaway [BRK-A], the investment company of renowned investor Warren Buffet, has gained 22.4% through 2021 after closing 16 June at $425,645.

Buffett has built a formidable reputation for beating the markets, and the share price of Berkshire Hathaway has outperformed compared to the S&P 500, which has grown only 12.4% in the same period. Over the past 12 months, Berkshire Hathaway has gained 55.6%, while the S&P 500 has gained 35.2%.

Throughout the start of the year, the share price of Berkshire Hathaway saw gains, reaching a year-high mark of $443,275 on 10 May. However, some investors have since questioned Buffett’s recent decision making. The stock saw a sharp selloff on 10 June, which caused the share price of Berkshire Hathaway to fall 1.4% on a single day.

55.6%

Berkshire Hathaway's share price gains over the past 12 months

  

The selloff occurred two days after the announcement of the move by Berkshire Hathaway to increase his exposure to Latin America’s expanding fintech sector.

 

Nu funds for Berkshire Hathaway

Berkshire Hathaway is leading a $750m investment round in $30bn-valued Nu Pagamentos, whose Nubank brand has 40 million users across Brazil, Mexico and Columbia. These numbers make Nubank Latin America’s largest fintech and one of the largest companies in the industry worldwide, besides being one of the world’s largest digital banks in terms of customer numbers.

Berkshire Hathaway is purchasing $500m-worth of Nu Pagamentos shares as part of the round, in deals completed late on 8 June, making Berkshire Hathaway the company’s largest single investor.

The investment round brings Nu Pagamentos’s total funding to $2bn in the eight years since the company was formed in 2013. Other investors along the way have included Tiger Global Management, Tencent [TCEHY] and TCV [TCVA], with Sands Capital among a number of other investors making up the current round.

The funding round is an extension of the G series the company received in January, which was led by GIC, Invesco [IVZ] and Whale Rock Capital Management, according to information from Crunchbase. The combined Series G total of $1.15bn makes this the largest round ever raised by a Latin American technology company.

$500million

Valuation of Nu Pagamentos shares bought by Berkshire Hathaway

  

The new funds will be put towards extending the company’s product portfolio, according to Forbes, building on its no-fee credit card and the credit and investment products Nubank acquired with its 2020 purchase of fintech company Easynvest.

 Additionally, the company will continue a global talent acquisition strategy that has seen it bring in former Amazon [AMZN] executive Matt Swann, who joined as chief technology officer in April, and Arturo Nuñez, who joined as chief marketing officer in June, having previously worked for Nike [NKE], Apple [AAPL] and his own company AIE Creative.

Berkshire Hathaway will add Nubank alongside StoneCo [STNE] in its cohort of Brazilian fintech investments. The payments firm brought Berkshire Hathaway strong returns initially after he invested in them in 2019 and during the coronavirus pandemic in 2020. However, the recent rotation away from growth stocks saw StoneCo’s share price fall 24.5% in 2021 through to 16 June, with Buffett slashing his stake by a quarter during the first quarter.

 

Faltering fintech

With the company yet to go public, the stock is yet to be an addition in any ETFs. The fintech theme as a whole has faltered this year, with two major ETFs — the Global X Fintech ETF [FINX] and the ARK Fintech Innovation ETF [ARKF] falling 0.7% and gaining 1.5%, respectively, in the year to 16 June. This is despite gains of 38.1% for the former and 65.6% for the latter over the past 12 months.

65.6%

The ARK Fintech Innovation ETF's gains over the past 12 months

  

StoneCo is held by both funds. It is the eighth-largest holding in the Global X Fintech ETF, weighted at 4.53% as of 17 June, while it is the 38th largest holding in the ARK Fintech Innovation ETF, with a 0.99% weighting as of 17 June.

Alternatively, there are ETFs focused on Brazil’s fast-growing startup scene, for instance, the iShares MSCI Brazil Small-Cap ETF [EWZS], which focuses on small-cap stocks in Brazil. The fund doesn’t hold StoneCo, but among its holdings are stocks such as website services firm Locaweb [LWSA3]. The stock is the fund’s its sixth-largest holding, with a 2.71% weighting as of 17 June. The iShares MSCI Brazil Small-Cap ETF has gained 20.8% in the year to date and 59.1% over the past 12 months.

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