Dividend exchange traded funds are extremely popular yet ETFs focused on companies that have returned capital to investors via share buybacks are among the top performers for 2013.
For example, PowerShares Buyback Achievers (NYSEArca: PKW) and AdvisorShares TrimTabs Float Shrink ETF (NYSEArca: TTFS) are up about 30% year to date. Guggenheim Insider Sentiment (NYSEArca: NFO) has posted a total return of about 23%. [Buyback ETF Outpacing Some of 2013’s Biggest Repurchasers]
The three funds take different approaches although some form of buybacks is embedded within their strategies.
PKW is by far the largest of the trio with over $1 billion of assets. The ETF tracks the Buyback Achievers Index. To become eligible for inclusion in the index, a company must have repurchased at least 5% or more of its outstanding shares in the past year. PKW has a net expense ratio of 0.71% after a fee waiver.
TTFS has about $54 million of assets and charges a fee of 0.99%.
“Top insiders at a firm know more about its fundamentals than the investing public. These insiders can influence the price of their employers’ shares by timing equity issuance and stock buybacks to their advantage,” according to a fact sheet on the ETF. “Supply and demand also dictates that stocks should perform best when their float is shrinking. All else being equal, if the same amount of money is chasing a smaller float, then the share price increases. TTFS’ stock selection algorithm is based on this premise.”
Aside from shareholder-friendliness as measured by float shrink, the portfolio manager TrimTabs also screens companies based on profitability and balance sheet strength. TTFS in actively managed ETF.
Finally, NFO holds about $130 million of assets and levies a net expense ratio of 0.65%. It follows the Sabrient Insider Sentiment Index. The benchmark selects stocks that reflect favorable corporate insider buying trends and recent earnings estimate increases by Wall Street analysts.
PowerShares Buyback Achievers
The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. 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.