Share Buybacks With ETFs

January 28, 2013

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?



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

Learn how currency-hedged ETFs can reduce the currency risk in your portfolio.


Investors poured money into riskier segments of the market, like small-caps and junk bonds, on Thursday, Oct. 8.

Inflows into 'SPY' and 'JNK' helped boost total assets for SSgA by more than $3.5 billion on Thursday, Oct. 8.


By Dave Nadig

Sometimes it pays to think beyond the label when it comes to the giants.

By Dave Nadig

Five consequences of the proposed rules the SEC put out yesterday.

By Sumit Roy

It's never happened, but it could.

By Dave Nadig

Think twice before getting excited.


By Denise Krisko

Managing liquid alt strategies.

By Scott Eldridge

Protecting your fixed income allocation in a volatile rate environment.

By iShares

How currency-hedged ETFs can help U.S. investors investing in international stocks.