Broadly speaking, U.S. companies just cannot seem to get it right when it comes to timing share repurchase programs. During the dark days of the financial crisis in 2008 and 2009, with equity prices depressed, share buybacks dwindled, but as the S&P 500 soared in 2013 and 2014, buybacks were all the rage.
That scenario is being replayed in 2015. With U.S. stocks struggling, companies are backing off of buybacks. In the second quarter, share repurchases by S&P 500 member firms slid 8.7 percent to $131.6 billion, down from the $144.9 billion posted in Q1 2015, according to S&P Dow Jones Indices. There is some good news: On a year-over-year basis, share repurchases increased 13.2 percent over the $116.2 billion reported during the second quarter of 2014, said S&P Dow Jones.
Buyback retrenchment is, not surprisingly, hampering some of the exchange traded funds dedicated to that particular cause. For example, the PowerShares BuyBack Achievers Portfolio PKW is off 8.6 percent over the past six months while the SPDR S&P 500 Buyback ETF SPYB, PKW's newer rival which debuted in February, has lost more than 10 percent since coming to market.
PKW is currently trailing the S&P 500 on a year-to-date basis, something the largest buyback ETF has done only twice in the past six years.
“On a sector basis, Information Technology continued to dominate buybacks as their percentage of the Q2 buybacks increased to 27.9% from 24.3% in Q1. Energy was again noticeably lower, declining to 2.7% of buybacks ($3.5 billion) from 3.8% ($5.5 billion) the first quarter and 7.5% ($8.7 billion) in the second quarter of last year, as lower share prices and more prudent spending have impacted the sector. Consumer Staples posted a 28.8% drop, as Consumer Discretionary posted a 17.4% increase over their first quarter expenditure,” said S&P Dow Jones.
Although the buyback ETFs follow different indexes and use different weighting methodologies, consumer discretionary and technology stocks are the largest weights in both funds. PKW allocates a combined 50.2 percent of its weight to those sectors while SPYB's allocation to those sectors is nearly 42 percent.
PKW tracks the NASDAQ U.S. BuyBack Achievers Index, which “is comprised of U.S. securities issued by corporations that have effected a net reduction in shares outstanding of 5 percent or more in the trailing 12 months,” according to PowerShares.
SPYB follows the S&P 500 Buyback Index, an equal-weight benchmark that “provides exposure to the 100 constituent companies in the S&P 500 with the highest buyback ratio in the last 12 months. The buyback ratio is defined as the ratio of the total cash put towards buybacks in the trailing year and the market capitalization of the company as of a reference date,” according to a statement issued by SSgA.
During the second quarter, Apple Inc. AAPL was the largest individual share repurchaser, buying back $10 billion of its own shares, up from $7 billion in the first quarter, according to S&P Dow Jones. Express Scripts Co. ESRX was in second after buying back $5.5 billion of its stock followed by semiconductor giant Qualcomm Inc. QCOM, which repurchased $5.4 billion of its shares.
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