Blog

Share Buybacks With ETFs

January 28, 2013
Share:

ETFs offer ready-made buyback bandwagons. Should you hop on?

 

Companies have snapped up their own shares on the open market with increasing frequency in recent months. They do so for a variety of reasons, and investors have long used their actions as a signal to buy or sell shares on their own.

Believers in the buyback play offer a simple rationale: Who better than the firm’s own management would have a solid grasp of the company’s prospects in the competitive landscape and therefore its true value relative to its market price?

Others may view it obvious but still effective gimmickry aimed at goosing share prices by manufacturing higher earnings per share.

A pair of ETFs provide exposure to the buyback play, but they differ greatly despite their common strategy.

I’ll look briefly at each.

The PowerShares Buyback Achievers Portfolio (NYSEArca: PKW) is the larger and more liquid of the two. Launched in 2006, PKW was the first mover here. It holds a healthy $230 million in assets and trades at decent 10 basis point spreads.

The fund holds U.S. firms that have repurchased sizable chunks—5 percent or more—of their outstanding shares over the past 12 months. Top holdings include familiar names like IBM, Intel, Home Depot and Disney.

In the aggregate, PKW’s basket of stocks differs from a plain-vanilla cap-weighted portfolio a whole lot less than you’d expect given its niche focus. Large-caps dominate the basket and sector exposure is marketlike except for a bias to consumer cyclical stocks.

Not surprisingly, PKW’s performance overall during the past year looks a lot like the broad market, which is to say, good.

The question then is, Why bother?

 

ETF.COM CHANNELS

Learn why commodity ETFs are an essential part of a diversified portfolio with our Commodity ETFs channel.

Learn why bond ETFs are an essential part of a diversified portfolio with our bond ETF channel.

ETF DAILY DATA

The biotech ETF was the biggest loser in terms of outflows on Friday, Feb. 5.

Vanguard ETF assets ticked up on Friday, Feb. 5.

ETF.COM ANALYST BLOGS

By Dave Nadig

For all the hype, here’s an example of an ETF working just as it should.

By Matt Hougan

Here's why you should attend the largest ETF conference in the world next month.

By Dave Nadig

Barclays built in a premium to this exchange-traded note, so back away.

By Sumit Roy

Why this probably isn't the start of a bear market.

ETF INDUSTRY PERSPECTIVE

By Jane Leung

A new way to hedge for currency risk in your international investments.

By Heidi Richardson

Opportunities in Germany and the eurozone.

By Shirish Malekar

How to protect your portfolio with liquid alts.