As Corporate America begins to return large cash hoards back to investors, exchange traded funds that track companies with a history of share buybacks are becoming more popular.
“In 2013, S&P Capital IQ expects share buybacks to remain on the forefront by Consumer Discretionary companies as a favored vehicle to return some capital to their shareholders,” Tuna N. Amobi, S&P Capital IQ Equity Analyst, said in a research note. “Pivoting the Discretionary sector among ‘buyback achievers’ is a cohort of large media and entertainment companies with ample ‘dry powder,’ stronger balance sheets, and a palpable capital allocation bias toward share buybacks.”
Easy credit has helped many companies maintain strong balance sheets as firms aggressively rebalanced with historic-low interest rates. Furthermore, companies are flush with cash because of moderate spending needs, accelerating free cash flow and improving financial flexibility. [Buyback, Dividend ETFs Boosted as Companies Return Record Cash]
According to Moody’s, US non-financial firms had $1.45 trillion in cash as of the end of 2012, up 10% year-over-year, reports Neena Mishar for Zacks. US banks could also return more than $30 billion back to share holders over the next 12 months, based on announcements by 14 banks.
With this in mind, there are a couple ETFs that provide exposure to companies with share buybacks, including PowerShares Dynamic Buyback Achievers Portfolio (NYSEArca: PKW), Guggenheim Investments Insider Sentiment ETF (NYSEArca: NFO) and TrimTabs Float Shrink ETF (NYSEArca: TTFS). However, S&P analysts give NFO and TTFS and underweight rating due to unfavorable risk and cost factors.
S&P analysts, though, provide a marketweight rating for PKW based on favorable performance based on fair value and technical indicators.