Invesco PowerShares Launches New Global Share Buyback ETF

December 22, 2014

Arnaud Llinas

Bryon Lake Head of Invesco
PowerShares
EMEA

Every once in a while, a new exchange traded fund comes along that captures a key emerging theme in the market: gold ETFs, dividend ETFs, low volatility ETFs and so on. The timing of the launch can give investors exposure to a new theme in the market just as it comes into vogue.

The new PowerShares Global Buyback Achievers UCITS ETF is one such fund.

Corporate stock buybacks—where companies buy back their own shares, reducing the total number of shares outstanding—have become a common theme in modern finance. They are an indicator that company management is on the side of shareholders, and represent one of the most tax efficient ways for profitable companies to return wealth to shareholders.

ETF Report UK recently caught up with Bryon Lake, Head of Invesco PowerShares - EMEA, to discuss the newly launched ETF and how it works.

ETF Report UK: Tell us about this new fund.
Bryon Lake: The PowerShares Global Buyback Achievers UCITS ETF is a new product that provides exposure to companies that are actively engaged in share buybacks. Specifically, it looks for companies that have reduced their overall share count by 5% or more in the trailing 12 months. The fund currently has an ongoing charge of 0.39% per annum and is available for trading on the LSE in either US$ (ticker: BUYB) or in GBP (ticker: SBUY).

ETF Report UK: Why are companies that are buying back shares potentially attractive?
Bryon Lake: Net share buybacks are a measurable quality factor. Companies that are repurchasing their own shares have a number of defining features: They’re profitable; their management is shareholder friendly; and they’re not afraid to return capital to the real owners of the company. Not surprisingly, when you have management align with shareholder interests, it tends to be a good thing.

You can also assume that, if management is buying back stock, it believes its shares are undervalued.

 

 

ETF Report UK: Why do companies buy back shares rather than pay dividends?
Bryon Lake: Ultimately, it’s a very efficient way to increase shareholders’ wealth. By reducing the supply of shares available in the market, you increase the value of each outstanding share and drive up the future earnings per share ratio. It can be more tax efficient than a dividend strategy, and ultimately, more effective at increasing shareholder wealth.

ETF Report UK: Couldn’t management just invest that money back into the business, rather than returning it to shareholders through buybacks?
Bryon Lake: Of course. And they do. If management identifies a place where they can invest capital and achieve a good return, you can be sure they’ll do it.

But the challenge is to do something with cash when it’s sitting on your books.

It’s often a sign of true stewardship and a focus on shareholder wealth when they choose to return that capital to shareholders by buying back stock instead.

ETF Report UK: Who else offers a share buyback ETF in Europe?
Bryon Lake: We are currently the only issuer to provide this specific strategy through an ETF vehicle in Europe.

ETF Report UK: What is Invesco PowerShares’ expertise in this space?
Bryon Lake: In 2006, Invesco PowerShares partnered with Nasdaq Global Indexes to develop a pioneering buyback index. Currently, Invesco PowerShares manages $2.9 billion globally in ETFs tracking buyback strategies.

 

 

ETF Report UK: How has the NASDAQ Global Buyback Achievers Index performed?
Bryon Lake: The index currently has 193 constituents. For the period from 30 September 2011 till 30 September 2014, the net total return index has returned 77.67% on a cumulative basis (an equivalent 21.10% annualised) – source Bloomberg.” The NASDAQ Global Buyback Achievers Index returns represent simulated performance for the period 30 January 2009 to 8 August 2014 and actual performance for the period from 11 August 2014, based on rules used in the creation of the index, and are not a guarantee of future performance and are not indicative of any specific investment.

ETF Report UK: Let’s talk about the index’s regional or country allocation.
Bryon Lake: At 30 September 2014, the index’s regional exposure was broken down as follows: 59.69% USA, 11.77% Japan, 7.57% Canada, 6.32% Mexico, France 4.60%. Countries with a weight under 4% include Australia, the Netherlands and Great Britian, among other developed and emerging markets.

ETF Report UK: Which sectors are represented in the index?
Bryon Lake: The portfolio follows the index’s semiannual evaluation and quarterly rebalance. The index reconstitutes on a quarterly basis, but the top 10 holdings as at 30 September 2014, included blue chip names like Home Depot, Oracle, Pfizer, Airbus, America Movil and Nippon Telegraph & Telephone. The index currently tilts towards consumer discretionary stocks, which have the largest sector allocation—at 26% of the index—but has significant weight in technology, telecom, financials and industrials.

It tilts towards large caps—they represent 73% of the index—and it’s roughly balanced between growth and value exposures.

The overarching feature that ties all these companies together is the focus on shareholder wealth.

ETF Report UK: One last question: If I’m an adviser, where does this fund fit into my portfolio, and how do I talk to clients about it?
Bryon Lake: The new PowerShares Global Buyback Achievers UCITS ETF can fit in multiple ways in a portfolio: used as a core holding to replace or supplement existing positions, or as a satellite position designed to add the opportunity for potential outperformance to a portfolio.

According to S&P DJ Indices for the 12 months ending June 2014, S&P 500 issuers increased their buyback expenditures by 26.6% to $533.0 billion from the $420.9 billion posted during the corresponding 12 month period in 2013 (Source: SPDJI, 23 September 2014). The level of share buybacks during the trailing 12 month period has only been exceeded once, when, during the 2007 fiscal year, a total of $589.1 billion shares were bought back by S&P 500 members. With research indicating that buyback programs are a growing global phenomenon (Source: Deutsche Bank, “Share Buybacks: Is It Worth It?” - March 2014), numerous firms are now acquiring their own stock at a faster pace than ever; as an example, Japanese businesses have acquired $25 billion of purchases so far this year (Source: Bloomberg, 23 July 2014.)

 

 

 

 

Invesco PowerShares: Leading the Intelligent ETF Revolution
Invesco is a leading independent global investment management firm, dedicated to helping people worldwide build their financial security. By delivering the combined power of our distinctive worldwide investment management capabilities, Invesco provides a comprehensive array of enduring investment solutions for retail, institutional and high net worth clients around the world. Operating in 20 countries, the firm is listed on the New York Stock Exchange. PowerShares was founded in the US in 2003 on a vision of delivering investment performance through the benefit-rich Exchange Traded Fund (ETF) structure. In January 2006, PowerShares expanded its vision by becoming part of Invesco Ltd, whose global presence took the Invesco PowerShares story beyond the US. When the first ever ETF was launched in 1993, its purpose was simple—to track the S&P 500 Index while trading on a major exchange. Since then, many traditional ETFs have been designed to mirror a number of different benchmark indices. Not all ETFs, however, seek to simply track a measure of a market. Invesco PowerShares offers a selection of ETFs that track “next generation” indices: indices that go beyond merely tracking a particular market. These indices attempt to outperform the performance of a particular market through intelligent security selection and weighting.

For more information go to www.invescopowershares.co.uk.

Risk warnings
The price of ETFs and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. The risks described herein are the fund specific material risks. ETFs’ share prices are subject to a bid / offer spread, subject to management fees, and whilst they seek to track an index, there is no guarantee that this will be achieved. Accordingly, ETF investment returns will be different to those of the index. Investors cannot buy an index directly. When making an investment in an ETF you are buying shares in a company that is listed on a stock exchange. It is expected that shares in the ETFs will trade closely to their NAV, and because of the exchange-traded fund structure, it is expected that a significant discount or premium of price to asset value will not be sustainable over the long term. However, supply and demand in the shares on the relevant exchange together with any disruptions to creations and redemptions of units in the underlying fund may result in share prices that differ significantly from the NAVs and there can be no certainty that there will be liquidity in the shares on any exchange. Only Authorised Participants, as defined in the Prospectus of the ETF, can request the Manager to create and redeem units in the underlying fund. For more information please consult the current fund specific Key Investor Information Document (KIID) and for a complete set of risks the current prospectus.

 

 

Important information
This factsheet is for use in the UK only. Please do not redistribute.Where Invesco Powershares has expressed views and opinions, these may change. The distribution and the offering of ETFs in certain jurisdictions may be restricted by law. Persons into whose possession this document may come are required to inform themselves about and to comply with any relevant restrictions. This does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to make such an offer or solicitation. Persons interested in acquiring ETFs should inform themselves as to (i) the legal requirements in the countries of their nationality, residence, ordinary residence or domicile; (ii) any foreign exchange controls and (iii) any relevant tax consequences. As with all investments, there are associated risks. The fund is available only in jurisdictions where its promotion and sale is permitted. Where securities are mentioned in this document they do not necessarily represent a specific portfolio holding and do not constitute a recommendation to purchase, hold or sell.

Any investment in an ETF should be made on the basis of the relevant Prospectus and Key Investor Information Documents, including consideration of the investment objective, risks, charges and expenses. Further information on the ETFs, including the Prospectus, Key Investor Information Documents and Supplements are available at www.invescopowershares.net, or from your financial adviser or broker. This document is intended for information purposes in regard to the existence and potential benefits of investing in ETFs. However, it is not intended to provide specific investment advice including, without limitation, investment, financial, legal, accounting or tax advice, or to make any recommendations about the suitability of the ETF for the circumstances of any particular investor. You should take appropriate advice as to any securities, taxation or other legislation affecting you prior to investment.

The NASDAQ Global Buyback Achievers™ Index is a trademark of The NASDAQ OMX Group, Inc. and is licensed for use by Invesco PowerShares Capital Management LLC in connection with the PowerShares Global Buyback Achievers UCITS ETF (“the Fund”). The Fund is not sponsored or endorsed by The NASDAQ OMX Group, Inc. and The NASDAQ OMX Group, Inc. makes no warranty or representation as to the accuracy and/or completeness of the Index or results to be obtained by any person from use of the Index or the trading of the Fund. This document is issued in the UK, on behalf of Invesco PowerShares, by Invesco Asset Management Limited, Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire RG9 1HH, UK. Authorised and regulated by the Financial Conduct Authority.

Where securities are mentioned in this document they do not necessarily represent a specific portfolio holding and do not constitute a recommendation to purchase, hold or sell.


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