This ETF Buys Into Its Own Idea

August 16, 2008 at 1:00 am by Tom Lydon

Exchange traded funds (ETFs) have given rise to a variety of unique funds, and one of them is one that buys into itself - literally.

The PowerShares Buyback Achievers Portfolio Fund (PKW) holds a basket of companies that invest in themselves. It tracks the BuyBack Achievers Index, which is made up of about 254 companies.

The index’s components must be incorporated in the United States, trade on a U.S. exchange and must have re-purchased at least 5% of its shares within the past 12 months. PKW is down 9.7% year-to-date, says Billy Fisher for The Street, but it is outpacing both the S&P 500, which is down 12.5%, and the average large-cap blend fund, which is down 10.9%.

The idea emerged from a study by Ford Equity Research showing the companies with a shrinking number of shares outstanding tended to produce excess returns, experience low volatility and perform well when the markets were depressed.

PKW is most heavily weighted in the service sector, at 44.1% of the fund; information technology is 30% and manufacturing is 26%.

Companies that can be found within the index are as diverse as Exxon (XOM; 5.1%), International Business Machines (IBM; 5.2%), and Walt Disney (DIS; 3.1%).