ETFs, Stocks See Dwindling Buyback Support

Through some of the go-go days of the Federal Reserve's quantitative easing and zero interest rate policy (ZIRP) schemes, investors regularly heard about share buybacks among S&P 500 member firms flirting with or reaching records.

Really, the math was too simple and compelling to ignore. Borrowers with investment-grade credit ratings could take advantage of low interest rates and juice their per share earnings with a big buyback program. What's not to like about that?

Buybacks And ETFs

Subsequent enthusiasm for corporate buybacks also boosted exchange-traded funds such as the PowerShares BuyBack Achievers Fund (ETF) PKW. From 2007, PKW's first full year of trading, through the end of 2015, the buyback ETF returned almost 99 percent compared to less than 74 percent for the S&P 500.

Related Link: These Aren't Middling Returns With This Mid-Cap ETF

While the performances of PKW and other buyback ETFs are driven by the companies already residing in these funds, positive sentiment surrounding buybacks certainly does not hurt. Positive sentiment can include a spate of large repurchase announcements from big-name companies, a scenario that is becoming increasingly less prominent.

“TrimTabs reported that the number of buyback announcements this earnings season has fallen to the lowest level since the autumn of 2013. With just a few days left in earnings season, this season’s 3.3 buybacks per day falls well short of the 6.1 per day in earnings season a year ago,” said California-based TrimTabs in a note out Tuesday.

TrimTabs noted that through August 15, the number of buybacks announced this earnings season was just 3.3 per day for $1.8 billion, the lowest level in four years.

It could be a chicken and egg debate, but PKW is up 5.6 percent year-to-date while the S&P 500 is higher by 8 percent.

Repurchasing Companies And PKW

According to TrimTabs, only the following five companies have announced repurchase programs of at least $3 billion this earnings season:

• Biogen Inc BIIB.
• Visa Inc V.
• CBS Corporation CBS.
• American International Group Inc AIG.
• Twenty-First Century Fox Inc FOXA.

With the exception of Dow-component Visa, each of those stocks are among the 229 names found on PKW's roster. The ETF allocates 45 percent of its combined weight to industrial and consumer discretionary stocks.

“Buybacks aren’t likely to provide as much fuel for the stock market as they have in the recent past,” said David Santschi, chief executive officer of TrimTabs, in the note. “The juice for further gains will have to come from central banks or somewhere else.”