With Corporate America returning some of its cash hoard back to shareholders, dividend exchange traded funds have become a popular investment strategy, but investors can also consider a fund that tracks buyback stocks.
The PowerShares BuyBack Achievers Portfolio (NYSEArca: PKW) has been one of the best performing ETFs on the market, writes Jordan Wathen for The Motley Fool. [The Big Payback: Why Buyback ETFs are Outperforming]
Year-to-date, the ETF has gained 15.7% compared to the 11.7% increase in the S&P 500. Stock components in the Powershares ETF are slightly less volatile than the S&P 500, and the ETF has consistently beaten the broad index.
PKW tries to reflect the performance of the NASDAQ Buyback Achievers Index, which is comprised of stocks that have repurchased at least 5% of their total shares outstanding over the past year and is weighted by market cap.
According to Ford Research, the creator of the underlying Buyback index, companies that repurchased over 5% of their stocks in the past 12-months outperformed the S&P 500 Index in 24 of the 28 years between 1975 and 2003.
Through buybacks, companies are able to boost valuations by increasing earnings-per-share.
Wathen also notes that PKW has beaten the total returns found in dividend funds. The buyback fund saw a 3- and 5-year return of 59% and 57%, respectively, compared to the 45% 3-year and 47% 5-year total return for the SPDR S&P Dividend ETF (NYSEArca: SDY).
PowerShares BuyBack Achievers Portfolio
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Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.