Share repurchases may be slowing a bit from the fevered pitch seen last year and in the first quarter of 2014, but that is not damping the allure of some exchange traded funds that emphasize the benefits of shrinking floats.
“For the 12 months ending March 2014, S&P 500 issues increased their buyback expenditures by 29.0% to $534.9 billion from the $414.6 billion posted during the corresponding twelve month period in 2013. The twelve month high mark was reached in fiscal year 2007, when companies spent $589.1 billion. The twelve-month recession low point was $137.6 billion, recorded in fiscal year 2009,” according to S&P Dow Jones Indices.
For a good part of the second quarter, S&P 500 member firms with larger buybacks lagged the broader market, but the TrimTabs Float Shrink ETF (NYSEArca: TTFS) is still up 9.6% this year, inline with the S&P 500. [Buyback ETFs Still Firm]
Although TTFS has merely matched the performance of the S&P 500 this year, that does not change the fact that just a few weeks shy of its third anniversary, the ETF has outperformed the benchmark U.S. index by an average of 4% per year with comparable volatility.
TTFS has another feather in its cap: With nearly $150 million in assets under management, which represents roughly 50% AUM growth just this year, the ETF is one of the largest actively managed equity-based ETFs.
“We’re happy with how the product has grown and where it’s at,” said TrimTabs Portfolio Manager Minyi Chen in an interview with ETF Trends from the Morningstar ETF Conference in Chicago.
Although Chen acknowledges TTFS, and a plethora of other ETFs for that matter, have benefited from so many U.S. companies voraciously repurchasing their shares, that does not mean the ETF is vulnerable to a slowdown in buybacks.
“A shift away from buybacks is not a huge concern because of the overall float shrinkage approach,” said Chen.
That holistic approach includes emphasizing free cash flow as part of TTFS’ stock selection methodology. And although some companies could halt their buyback efforts, Chen believes he will always be able to find 100 companies that fit the parameters for inclusion in TTFS. [The Real Deal With the Float Shrink ETF]
On that note, it must be acknowledged that in addition to capping any one sector at 25% of TTFS’ weight, the fund is sector agnostic.