Is Berkshire Hathaway a Mutual Fund or Something Else?

Berkshire Hathaway is often compared to mutual funds because it owns a diverse portfolio of businesses and investments. However, its structure and operations differ significantly from traditional investment funds. Understanding these differences is important for investors determining how Berkshire fits into their portfolios.

While a mutual fund pools money from investors to buy stocks or bonds, Berkshire operates under a different model with unique advantages and limitations.

Holding Company Structure

Berkshire Hathaway functions as a holding company, meaning it owns controlling stakes in a wide range of businesses rather than simply investing in publicly traded securities. This structure allows it to generate income from wholly owned subsidiaries such as GEICO, BNSF Railway, and Dairy Queen, while also maintaining a sizable portfolio of minority investments in companies like Apple and Coca-Cola. Unlike a mutual fund, which primarily earns returns through capital appreciation and dividends, Berkshire benefits from direct cash flows from its subsidiaries, giving it greater flexibility in capital allocation.

This model enables Berkshire to reinvest earnings from its subsidiaries into new acquisitions or expand existing businesses without the constraints faced by traditional investment funds. For example, when GEICO generates underwriting profits, those funds can be redeployed into purchasing additional companies or increasing stakes in publicly traded firms. Mutual funds, by contrast, must distribute most of their income to investors, limiting their ability to reinvest.

Berkshire’s structure also allows it to take a long-term approach to ownership. Mutual funds often face pressure to deliver short-term performance, leading to frequent portfolio turnover. Berkshire can hold businesses indefinitely, benefiting from compounding returns over decades. This is evident in its ownership of See’s Candies, which it acquired in 1972 and has retained ever since, using its steady cash flow to fund further investments.

Regulatory Considerations

Berkshire Hathaway is subject to different regulatory requirements than mutual funds due to its structure as a holding company rather than an investment vehicle. While mutual funds must comply with the Investment Company Act of 1940, Berkshire operates under regulations governing publicly traded corporations and insurance companies. These differences impact how it is registered, overseen, and required to disclose financial information.

Registration

Mutual funds must register with the Securities and Exchange Commission (SEC) under the Investment Company Act of 1940, which imposes strict rules on diversification, leverage, and investor protections. Berkshire Hathaway is not classified as an investment company under this law because its primary business is owning and managing subsidiaries rather than solely investing in securities. Instead, it is registered as a publicly traded corporation under the Securities Exchange Act of 1934, which governs companies listed on U.S. stock exchanges.

This distinction allows Berkshire to operate with fewer restrictions than mutual funds. For example, mutual funds must maintain a certain level of liquidity to meet investor redemptions, whereas Berkshire has no such requirement since its shareholders buy and sell stock on the open market. Additionally, mutual funds must distribute nearly all their income to investors to maintain their tax-advantaged status under Subchapter M of the Internal Revenue Code, while Berkshire can retain earnings for reinvestment.

Oversight

The SEC oversees both mutual funds and publicly traded companies, but mutual funds are subject to additional regulations under the Investment Company Act, including requirements for independent boards, limits on fees, and restrictions on affiliated transactions. Berkshire follows general SEC reporting requirements but does not have to comply with these fund-specific rules.

Berkshire is also regulated by state insurance departments due to its ownership of insurance subsidiaries like GEICO and National Indemnity. These entities must meet capital reserve requirements and submit financial statements to state regulators to ensure they can cover policyholder claims. Mutual funds do not face this type of oversight.

Berkshire’s acquisitions can also trigger antitrust reviews by the Federal Trade Commission (FTC) or the Department of Justice (DOJ) if they raise competition concerns. Mutual funds, by contrast, typically do not face such scrutiny since they do not take controlling stakes in operating businesses.

Disclosure

Publicly traded companies, including Berkshire Hathaway, must file quarterly (10-Q) and annual (10-K) reports with the SEC, detailing financial performance, risk factors, and management discussions. Mutual funds provide prospectuses and shareholder reports that focus on portfolio composition, expense ratios, and performance relative to benchmarks.

A key difference is that mutual funds must disclose their holdings quarterly on Form N-PORT. Berkshire, while required to report its publicly traded stock holdings on Form 13F, does not have to disclose private business ownership details in the same way. This means investors in Berkshire may not have full visibility into all of its assets at any given time.

Another distinction is in accounting treatment. Mutual funds use net asset value (NAV) to determine share prices, reflecting the market value of their holdings. Berkshire reports earnings per share (EPS) and book value, which includes both marketable securities and wholly owned businesses. This difference affects how investors assess performance, as Berkshire’s value is influenced by both stock market fluctuations and the profitability of its subsidiaries.

Trading Shares

Berkshire Hathaway’s stock has a dual-class share structure, consisting of Class A (BRK.A) and Class B (BRK.B) shares. This structure impacts accessibility, voting rights, and liquidity, influencing how different types of investors engage with the company.

Class A shares, originally the only type available, are among the most expensive stocks in the world, trading at hundreds of thousands of dollars per share. This high price is due to Berkshire’s policy of never splitting its Class A stock, preserving its exclusivity and discouraging short-term trading. Investors who hold Class A shares can convert them into Class B shares at a ratio of 1,500 to 1, but this exchange is irreversible.

Class B shares were introduced in 1996 to make Berkshire more accessible to retail investors. They trade at a much lower price and have reduced voting power, with each Class B share carrying only 1/10,000th of a vote compared to a full vote per Class A share. This ensures that control remains concentrated among long-term shareholders, particularly Warren Buffett and other key stakeholders. Unlike Class A shares, Class B shares have undergone stock splits, most notably a 50-to-1 split in 2010 to facilitate their inclusion in the S&P 500 index.

The liquidity of Berkshire’s shares varies significantly between the two classes. Class A shares, due to their high price, are less frequently traded, resulting in lower daily volume and wider bid-ask spreads. In contrast, Class B shares experience higher trading activity, making them more accessible for investors who require greater flexibility in entering and exiting positions.

Dividend and Retained Earnings

Berkshire Hathaway has never paid a dividend under Warren Buffett’s leadership, despite holding substantial cash reserves and generating consistent profits. Instead, the company reinvests its earnings into acquisitions, share repurchases, or business expansion. This contrasts with many large corporations that distribute a portion of their profits to shareholders as dividends.

Buffett believes Berkshire can generate higher returns by reinvesting capital rather than returning it to shareholders. Retained earnings compound over time, allowing the company to acquire more assets and generate additional income streams. For example, by using retained earnings to fund acquisitions like Precision Castparts or Pilot Travel Centers, Berkshire has expanded its revenue base without relying on external financing.

Another advantage of this strategy is tax efficiency. Dividends are typically taxed twice—once at the corporate level and again when received by investors, often at rates of 15% or 20% for qualified dividends. By avoiding dividend payments, Berkshire allows shareholders to defer taxes indefinitely, only realizing gains when they choose to sell their shares, potentially benefiting from long-term capital gains treatment instead.