Buyback ETF Steady As Repurchases Decline

Share repurchases by S&P 500 member firms were solid last year, but declined from the totals seen in each of the previous two years. Still, the PowerShares BuyBack Achievers Fund (ETF) PKW returned 12.9 percent in 2016, topping the S&P 500 by 90 basis points.

Q4 Buybacks

Buybacks by S&P 500 companies “totaled $135.3 billion for Q4 2016. This is a 20.6 percent increase from the $112.2 billion reported for Q3 2016, but a 7.3 percent decrease from the $145.9 billion reported for Q4 2015,” said S&P Dow Jones Indices in a note out Wednesday. “For full-year 2016, S&P 500 issues spent $536.4 billion on buybacks, down 6.3 percent from $572.2 billion for 2015 and down 3.1 percent from $553.3 billion for 2014; the 12-month high is $589.4 billion, which was set during Q1 2016.”

The $1.36 billion PKW, which debuted in late 2006, follows the NASDAQ US BuyBack Achievers Index. That benchmark is “comprised of US 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.

In the fourth quarter, 281 members of the S&P 500 lowered their share counts, up from 257 in the third quarter, but down from the 318 that did so in the fourth quarter of 2015, according to S&P Dow Jones.

Looking At Biotech, Healthcare Buybacks

Pharmaceuticals giant Allergan plc Ordinary Shares AGN spent $12.3 billion on buying its own shares in the fourth quarter, a significant percentage of the $15.1 billion the company spent on buybacks during 2016, according to S&P Dow Jones.

Although the healthcare sector, the third-largest sector weight in the S&P 500, is a prodigious buyer of its own shares, it is not a significant part of PKW's lineup. Currently, the sector is less than 9 percent of the buyback ETF's weight and is merely the fifth-largest sector allocation in the fund. For all of Allergan's 2016 repurchases, the stock currently is not one of the 12 healthcare names found in PKW.

Apple Inc. AAPL spent $33.7 billion on share repurchases last year, down from $37.1 billion in 2015. However, Apple's fourth-quarter buyback of $10.9 billion was the ninth-largest quarterly buyback on record for an S&P 500 member, according to S&P Dow Jones.

Technology is PKW's four-largest sector weight at 12.6 percent, but Apple is not one of the ETF's 235 holdings. PKW is heavily concentrated at the sector level as financial services, industrials and consumer discretionary combine for about three-quarters of the ETF's weight.

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