All that chatter about the Federal Reserve possibly tapering its $85 billion-a-month in bond-buying and the subsequent spike in interest rates did little to derail the fortunes of the high-flying PowerShares Buyback Achievers Portfolio (NYSEArca: PKW).
Since May 22, the day when tapering became a part of the everyday financial markets conversation, PKW has surged 13.6%, nearly double the returns of the S&P 500. PKW’s ongoing bullishness is made all the more impressive when considering that tapering speculation made the third quarter the worst of this year regarding buybacks. [Buyback ETFs Keep on Delivering]
Amid tapering talk, companies decreased their buybacks in July and August making the third quarter the lowest of the year at $168.9 billion Jeff Cox reports for CNBC, citing Birinyi Associates. The reason: Many companies have taken advantage of the low interest rate environment to issue corporate bonds, subsequently using the proceeds to fund share repurchases.
Still, tapering and a lower level of buybacks have proven to be no more than minor hurdles for PKW to overcome. Over the past 90 days, the ETF has outpaced the S&P 500 by 350 basis points. In that time, PKW has also been the second-best PowerShares ETF in terms of inflows with almost $821 million, nearly $200 million more than the PowerShares QQQ (NasdaqGS: QQQ), according to issuer data.
September was a strong month on the buyback front as companies repurchased $68.1 billion worth of their own shares, CNBC reports. According to CNBC, Citigroup runs a proprietary screen for top buyback companies and that screen is up 36% this year. PKW is higher by almost 38%. Citi considers companies that have reduced share count by 5% over the past year and picks the largest 50 companies that fall into that category, CNBC reported.
To be eligible for inclusion in the NASDAQ US Buyback Achievers Index, PKW’s underlying index, companies must have repurchased at least 5% or more of its outstanding shares for the trailing 12 months, according to PowerShares, so the PowerShares and Citi criteria are similar. [Buyback ETF Outperforming Broader Market]
Citi’s screen turns up Seagate Technology (NYSE: STX), Comcast (NasdaqGM: CMCSA), DirecTV (NYSE: DTV), Pfizer (NYSE: PFE) and O’Reilly Automotive (NasdaqGM: ORLY) as the top-five buyback ideas. Consumer discretionary are most represented in the Citi buyback group followed by healthcare, financials and information technology, CNBC reported.
Of those stocks, only DirecTV is found among PKW’s top-10 holdings and the satellite TV provider is in the ETF’s tenth spot with a weight of almost 2.1%. Of the other four Citi repurchase ideas, only O’Reilly is found in PKW’s lineup and at a weight of less than 0.9%.
However, PKW does share one thing in common with the Citi buyback screen: Sector preferences. Consumer discretionary accounts for 34.3% of the ETF’s weight while financials, technology and health combine for another 48%.
PowerShares Buyback Achievers Portfolio
Tom Lydon’s clients own shares of QQQ.