Why 2015 Has Turned Out To Be A Defining Year For Share Buybacks?

2015 has seen some of the biggest buybacks being announced by companies and dividend increase across the board, but have shareholders really profited from investing in these companies?

Hardeep Walia, Motif Investing CEO, was on CNBC to answer that question and to elaborate on the motif comprising of high yield companies.

The Buyback Motif

“It has been a good strategy,” Walia said. “So this is a Motif comprised of the companies with the highest buyback yield. We look at all listed companies that had authorized buyback programs, [throughout] companies with declining free cash flow and companies that were using debt to finance their buyback and you are left with this list of companies.”

“We weighted it by buyback yield, so companies in here include ProAssurance, Jack In The Box, Marriott, GAP, Emcore is in here, General Dynamics and it is a lot to do with weighting methodology…2015 is going to be a record year in terms of the expectation are that U.S. companies [were to] return about a trillion dollars to shareholders, 60 percent in the form of buybacks, 40 percent in the form of dividend.”

He continued, “This motif is up 25 percent versus the S&P of about 12 percent, its done really well and its done really well versus our growing dividend index as well. So, it’s a strategy that seems to have legs.”

Mid-Cap Bias

Walia was asked if he had back-tested this strategy and what was the outcome of it. He replied, “This motif actually has a long bias towards mid-cap, 50 percent [of it is] comprised of mid-cap and if you look at the median allocations to buyback, large-cap companies are at 28 percent. That’s ahead of the median pre-crisis of 27 percent, but on the mid-cap and small-cap size you are seeing the allocations that are at 11 percent, which is below the pre-crisis amount of 12 percent.”