Q4 Buybacks Fall, but Buyback ETFs Remain Sturdy

After spending $145.2 billion on share repurchases in the third quarter of 2014, S&P 500 members bought back $132.6 billion of their own shares in the fourth quarter, a drop of 8.7%.

“The $132.6 billion Q4 spend represents a 2.5% increase from the $129.4 billion spent during the fourth quarter of 2013. For fiscal year 2014, S&P 500 issues increased their buyback expenditures by 16.3% to $553.3 billion from $475.6 billion posted in 2013,” according to S&P Dow Jones Indices.

The record year for S&P 500 share repurchases was 2007 when members bought back $589.1 billion of their own shares.

Although fourth-quarter repurchases dipped from the third quarter, exchange traded funds emphasizing buybacks and share count reduction have been strong performers in 2015. For example, the PowerShares Buyback Achievers Portfolio (NYSEArca: PKW), the largest buyback ETF, and the actively managed Cambria Shareholder Yield ETF (NYSEArca: SYLD) are both up more than 4% this year compared to a 2.5% gain for the S&P 500. [Buyback Companies on the Rise]

Earlier this year, the NASDAQ US BuyBack Achievers Index, PKW’s underlying index, finally added Apple (NasdaqGS: AAPL), which has been one of the largest repurchasers of its own shares in recent years. Dow component International Business Machines (NYSE: IBM), also joined PKW. [Apple Finally Enters Buyback ETF]

SYLD, which in addition to buybacks emphasizes dividends and a company’s ability to reduce debt, allocates a combined 32% of its weight to the consumer discretionary and technology sectors, two of the largest repurchasers of their own shares. Financial services account for 23% of SYLD’s weight. Following the Federal Reserve’s recent stress tests, several of that sector’s big-name constituents will be able to boost buybacks and dividends. [Bank ETFs to see Bigger Buybacks, Dividends]

“Share count reduction continues to be the market takeaway,” says Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices. “It has significantly increased earnings-per-share (EPS) for 20% of the index issues in each of the past four quarters. While fourth quarter expenditures were down 8.7%, the number of issues reducing their share count by at least 4% year-over-year, and therefore increasing their EPS by at least that amount, continues to be in the 20% area – a significant level.”

The TrimTabs Float Shrink ETF (NYSEArca: TTFS), also actively managed, focuses on companies that have reduced their shares outstanding over the prior 120 days. The ETF’s holdings are selected based on three primary criteria: Shareholder friendliness via float shrinkage, profitability measured by free cash flow and balance sheet sturdiness measured by leverage ratio.

TTFS recently topped $200 million in assets under management and earned its second five-star rating from Morningstar.

The ETF is worthy of those accolades as it is up 5.2% this year and 51% over the past two years. [A Selective Approach to Buyback ETFs]