How To Capture Share Buybacks With An ETF
The trend of companies announcing share buybacks to reduce their outstanding float and increase their stock price has continued in earnest this year.
Recent announcements from companies such as Apple (NASDAQ: AAPL) and Ford (NYSE: F) highlight strategic management decisions to use billions in excess cash or cheap financing in order to enhance shareholder value.
Seeking out these companies used to be a difficult task that required a great deal of analytical work. Now it's easy--several ETFs focus exclusively on stocks with extensive buyback plans in place
The PowerShares Buyback Achievers Portfolio (NYSE: PKW) is comprised of US securities that repurchased five percent or more of their shares in the trailing 12 months.
The portfolio features 177 companies that have a solid foundation of capital to repurchase publicly traded shares. PKW currently has $2.9 billion under management and charges an annual expense ratio of 0.71 percent.
The fund has 64 percent of the portfolio allocated towards large-cap stocks, while the remaining 34 percent is focused on mid- and small-cap companies. In addition, nearly every sector is represented by the underlying holdings, which gives this ETF broadly diversified qualities.
Another popular ETF in this space is the TrimTabs Float Shrink ETF (NYSE: TTFS). This fund is actively managed by TrimTabs Asset Management and seeks stocks with liquidity and fundamental characteristics that they believe represent good long-term performance.
One of the advantages of an actively managed ETF is that the fund manager has more flexibility to select stocks for the portfolio that may have just announced a new buyback plan. In addition, they can target select sectors or market cap weightings according to their fundamental outlook.
Currently TTFS charges a net expense ratio of 0.99 percent and has more than $125 million in assets under management.
From a performance standpoint, TTFS has a slight edge in year-to-date returns over PKW. So far this year, TTFS has gained 2.37 percent, while PKW has gained 0.69 percent.
Each ETF offers access to a unique subset of stocks with the same capital initiatives designed to increase shareholder value.
Note: The author owns PKW as of the time this article was published.
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