Buyback ETF Deals With Declining Repurchases

The PowerShares BuyBack Achievers Fund (ETF) PKW is up 5.6 percent year to date, a performance that trails the S&P 500 by more than 300 basis points. That is a result of the performances being notched by PKW's underlying holdings, but data indicate S&P 500 spent less on share repurchases in the first quarter than in the year earlier period.

What Makes PKW Unique

PKW does not track the S&P 500 or any S&P index for that matter. Rather, the buyback ETF follows the NASDAQ US BuyBack Achievers Index, which “is comprised of US securities issued by corporations that have effected a net reduction in shares outstanding of 5% or more in the trailing 12 months,” according to PowerShares.

The ETF currently holds 229 stocks with an average market capitalization of over $51.2 billion.

First-quarter spending on share buybacks by S&P 500 member firms “totaled $133.1 billion for Q1 2017. This is a 1.6 percent decrease from the $135.3 billion reported for Q4 2016 and a 17.5 percent decrease from the $161.4 billion reported for Q1 2016, when companies actively supported declining share prices, said S&P Dow Jones Indices in a note out Wednesday.

Performance

For the year ended March 31, 2017, the decline in share buybacks by S&P 500 components was also dramatic.

“For the 12-month period ending March 2017, S&P 500 issues spent $508.1 billion on buybacks, down 13.8 percent from $589.4 billion for the prior 12-month period; the 12-month period ending March 2016 remains the all-time record,” said S&P.

Holdings, Weight

PKW allocates over half its combined weight to industrial and financial services stocks. At the sector level, financials saw the biggest increase in first-quarter buybacks while accounting for just over 22 percent of all repurchases. Six of the ETF's top 10 holdings and each of the top five are members of the Dow Jones Industrial Average. However, PKW still lacks exposure to Apple Inc. AAPL while that company remains a prolific buyer of its own shares.

In the first quarter, Apple spent $7.2 billion buying back its own stock, down from the fourth-quarter total, but up from the $6.7 billion the company spent in the first quarter of 2016, according to S&P.

The healthcare and technology sectors combined for almost 41 percent of first-quarter repurchases, notes S&P. Those sectors combine for 21 percent of PKW's weight and are the fourth- and fifth-largest sector allocations in the ETF.

For the six-year period ending 2016, PKW outpaced the S&P 500 three times.