More Buybacks Coming
While owners of these funds are benefiting in the near term from the dividend increases, many of these same companies announced share repurchase programs that will be deployed and help earnings over the more intermediate term. For example, J.P. Morgan and Citi expect to repurchase $19 billion and $16 billion of their own stock, respectively; American Express announced its own $4.4 billion program.
The PowerShares Buyback Achievers Portfolio (PKW) holds stocks of companies that have repurchased 5% or more their shares in the last 12 months. The ETF recently had a 24% stake in financials, including American Express and Goldman Sachs. Goldman did not announce a new buyback program last night, as peers did, but its CEO said it was well-positioned to return capital to shareholders following the Fed’s approval of its capital return plan.
CFRA’s Leon views Goldman Sachs as undervalued, and sees revenue and earnings being aided by improving capital markets.
While direct owners of these financials are likely pleased with the continued deployment of capital, signifying industry health, CFRA thinks that some—but not all—ETF shareholders are also impacted.
At the time of writing, neither the author nor his firm held any of the securities mentioned. Todd Rosenbluth is director of ETF and mutual fund research at CFRA, an independent research firm that acquired S&P Global Market Intelligence's equity and fund business in October 2016. He can be reached at [email protected]. Follow him at @ToddCFRA.