Opportunity With Buyback ETFs

The numbers are in and S&P Dow Jones Indices is estimating S&P 500 members spent $129.4 billion on share buybacks during the fourth quarter of 2013, up from $128.2 billion in third quarter. For all of last year, S&P 500 constituent companies spent $475.6 billion on buybacks, up from $398.9 billion in 2012.

While that is a mammoth and one, as has previously been documented, that could purchase every U.S. sports franchise, it is not a record for U.S. share repurchases. In fact, $475.6 billion is a good bit away from the record of $589.1 billion spent on share buybacks in 2007. [Buyback ETF Beats Its Top Holdings]

Records or not, investors love ETFs that emphasize the theme of reduced share counts. For example, the PowerShares Buyback Achievers Portfolio (NYSEArca: PKW) is third-best PowerShares ETF over the past year in terms of assets gathered at over $2.2 billion while the actively managed TrimTabs Float Shrink ETF (NYSEArca: TTFS) recently topped $100 million in assets. [Float Shrink ETF Tops $100M in Assets]

“The average stock price for Q1 2014 is running 21.0% higher than Q1 2013, meaning that a 21% increase in current expenditures is necessary to purchase the same number of shares as last year,” said S&P Dow Jones Senior Index Analyst Howard Silverblatt in a research note.

S&P Dow Jones Indices points out that in the fourth quarter, technology again accounted for the bulk of U.S. buyback activity at 26.7%, up from 25.3% in the third quarter. Dow component IBM (NYSE: IBM) and Apple (NasdaqGS: AAPL) combined for $10.8 billion of fourth-quarter buybacks.

While technology is PKW’s second-largest sector weight at 16.7%, neither Apple nor IBM currently reside in the ETF, but Apple’s addition to PKW could come as soon as the April rebalance. [Apple Advances Toward Buyback ETF]

TTFS is an equal weight ETF, so no single stock looms particularly large in that ETF, but IBM and Apple combine for 2.05% of the fund’s weight. The Cambria Shareholder Yield ETF (NYSEArca: SYLD), which focuses on dividends, buybacks and debt reduction, had a 12% weight to tech at the end of last year. SYLD is also an equal weight ETF with no IBM exposure an almost 1% weight to Apple, according to Cambria data.