3 ETF's That Focus on Share Buybacks

Matt Thalman - INO.com Contributor - ETFs

Some investors love large dividends. Some like to see strong revenue growth quarter over quarter. Others look for management teams they believe in. There are a hundred different metrics or indicators investors look for in a company or throughout the economy that makes them believe one stock will before better than another.

One that I haven't mentioned, but is very important to some investors, is share buybacks. While this form of returning capital to shareholders, the other being dividends, is questioned by many as whether it is the best use of company capital, in a lot of cases it’s a better use of capital than letting it just sit in the bank or even worse wasting it on risky acquisitions.

Regardless though of your stance on share buybacks, the fact remains they are a huge part of investing. They affect per share earnings, a company's ability to offer a higher dividend, and while, in most cases very small, they give investors a larger piece of the pie.

If you are in that boat, than buying ETF's that only purchase stocks whom have a track record of making large share repurchases may sound like a good idea and for those who don't believe this form of returning capital is good, maybe the return rates of a few of the top share buyback ETF's will help change your mind.

But before I point out a few of the large stock buyback focused ETF's, let's take a look at how corporate American has been treating buybacks over the past few years.

In the first quarter of 2015, corporate America spent over $148 billion on stock buybacks. That compares to the $132 billion spent through company repurchase plans during the first quarter of 2014, a rather nice increase. Furthermore from the first quarter of 2009 through the first quarter of 2014 S&P 500 companies spent more than $1.9 trillion on their own shares. During that same timeframe, the same group of business spent just $1.3 trillion on dividends.

With that information in hand, it's hard to argue that whether investors like it or not, S&P 500 management as a whole seems to prefer large share buybacks as opposed to handing over cold hard cash. So, as they say, 'befriend the trend.'

So let's take a look at 3 ETF's you can use to rid the share buyback wave.

One of the largest buyback ETF's is PowerShares Buyback Achievers ETF (PKW) that has net assets of more than $2.9 billion. This ETF owns stocks that have reduced net shares outstanding by at least 5% the previous year. Currently the ETF holds over 210 stocks, giving investors exposure to a large number of companies. The fund changes holdings on an annual basis, every January, but rebalances quarterly.

PKW currently has an expense ratio of 0.68% and offers a dividend yield of 1.04%. While over the past 6 months the fund is trailing the broader index, over the past 12 months it is up 10.5% compared to the S&P 500's 9.5% rise, the past two years PKW is up 26% compared to 23%, and over the last 5 years it is up nearly 130% compared to an 88% increase by the S&P.

If you are looking for a more active approach to investing, than TrimTabs Float Shrink ETF (TTFS) may be more your style. This ETF also must see that the actual share count is being lowered, as opposed to a company just having a share buyback program. But on top of that, TTFS is an actively managed fund, meaning the managers have the freedom to buy and hold different companies based on how they feel the stock will perform. This gives the manager the ability to play different industries or sectors as they are hot and drop others, like oil and gas now, when they are not.

TTFS has a dividend yield of 0.59%, has an annual expense ratio of 0.99% and currently has net assets of more than $240 million. Year to date TTFS is beating the markets, up 4% compared to 2.4%, over the last 12 months it is up 14.2% compared to 9.5% for the S&P 500, since the funds first day of trading on October 3, 2011 it has risen 111.4% while the S&P 500 is only up 71.2%.

And finally we have the Cambria Shareholder Yield ETF (SYLD). This ETF not only focuses on companies who are repurchasing stock, but also paying dividends and deleveraging. The idea is the ETF wants to focus on companies who are returning free cash flow back to their shareholders. SYLD currently has a dividend yield of 1.67%, has an expense ratio of 0.59% and net assets of $225 million. Furthermore SYLD has an annual holdings turnover of 83%, because similar to TTFS, SYLD is an actively managed fund.

SYLD is the only one of the three that is trailing the market in the short and long term. Over the past 6 months, as it is up 2.4% while the S&P 500 has risen 4.3% since the fund began trading on May 20, 2013 it has risen 25.6% compared to the S&P 500 which is up 28.6%. But, due to the higher dividend yield and the lower expense ratio, over the long-run an investor may still be better off with SYLD.

At the end of the day, it all depends on what kind of strategy you are looking for as to what type of ETF will bets suit you.

Matt Thalman
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513

Disclosure:This contributor did not hold shares of any company mentioned above. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

5 thoughts on “3 ETF's That Focus on Share Buybacks

  1. Jason R, thank you for pointing out that error. I apologize for any inconvenience it may have caused. The five year figures were pulled from a program that allows me to ask for more years of data than what is truly available. So the performance figures are correct when compared to the S&P 500, but for TTFS and SYLD they are not for 5 year periods, but just since each ETF began trading.

    The mistake will be fixed soon and again i apologize for the mistake itself and for not responding to you sooner.

  2. How did you get a five year historical return for SYLD? They started 5/13/13. I have been in it nearly from the beginning.

    Funny thing, my E*TRADE account performance report shows that my SYLD is beating the S&P YTD, 5.46% vs 2.41%. It seems very hard to find the truth about anything.

    1. One more thing, in the article you state:

      "over the last 5 years it is up nearly 130% compared to an 88% increase by the S&P" and "the last five years TTFS is up 98.9% while the S&P 500 has risen 72.1%" and "over the last 5 years SYLD has risen 25.4% as the S&P 500 is up 27.8%"

      Please explain to me how the S&P increased 88% AND 72.1% AND 27.8% over the last five years. I don't think I misread anything.

    2. WTF?!? Why even have a comment section if no one reads them? I pointed out blatant errors in the article. Not a peep from INO or the contributor. Tells me I should stop reading your stuff too...

  3. Peter Lynch, the great Fidelity Fund manager of the 1970-1990's,
    focused on companies with share buybacks.
    It was one of his criteria.

Comments are closed.