As Buybacks Soar, Buyback ETF Tries To Get Its Groove Back

Corporate America is continuing its share buyback binge, but there has not been a trickle-down effect to exchange-traded funds employing repurchases as part of their weighting methodology. For example, the PowerShares Buyback Achievers Fund (ETF) PKW is off a third of a percent year-to-date, while the S&P 500 is higher by more than 2 percent.

Over the past year, PKW's divergence from the S&P 500 is even more alarming. The buyback ETF, which has a track record of beating the S&P 500, is down 8.4 percent while the benchmark U.S. equity index is down just 1.1 percent.

Buybacks On Fire

During that time, buybacks have been soaring. For the one-year period ending March 31, 2016, S&P 500 companies repurchased a record $589.4 billion of their own shares, according to S&P Dow Jones Indices. The first quarter of 2016, buybacks jumped to $161.4 billion from $144.1 billion a year earlier.

“Additionally, for the 12-months ending in March 2016, S&P 500 constituents spent $589.4 billion on buybacks, up 9.5 percent from the $538.1 billion spent in the same period of 2015. The 12-month expenditure set a new S&P 500 record, replacing the $589.1 billion spent in 2007,” said S&P Dow Jones Indices.

Related Link: The Right Buyback ETF This Year

An ETF For Tracking Buybacks

The $1.52 billion PKW follows the NASDAQ US BuyBack Achievers Index, which mandates that member firms “effected a net reduction in shares outstanding of 5 percent or more in the trailing 12 months,” according to PowerShares.

In other words, simply a company is an aggressive repurchaser during a quarter, unless it reduces its shares outstanding count by at least five percent, it will not be found in PKW when the ETF is rebalanced.

PKW And Its Holdings' Performances

During the first quarter, Gilead Sciences, Inc. GILD was the most aggressive buyer of its own shares, repurchasing $8 billion worth, followed by Apple Inc. AAPL at $6.7 billion, according to S&P Dow Jones. Dow components General Electric Company GE, Exxon Mobil Corporation XOM and McDonald's Corporation MCD rounded out the top five share repurchasers during the first quarter.

Of those five stocks, only McDonald's is a member of PKW's lineup. The largest fast-food chain is PKW's largest holding at a weight of almost 4.8 percent.

The technology sector continues to be leading the sector when it comes to repurchases while the healthcare sector saw the largest increase (over 86 percent) in buybacks during the first quarter, according to S&P Dow Jones. Technology and healthcare are PKW's fourth- and fifth-largest sector weights, respectively, combining for 23 percent of the ETF's weight.