Buyback Impact Dampened, but ETF Still Firm

With valuations on U.S. stocks high in the eyes of some market observers, the previously positive impact of share buyback programs is being muted, triggering some rare under-performance by companies that have been voracious buyers of their own shares.

“Firms with larger buybacks outperformed the market for several quarters, but that streak is in jeopardy, as the S&P 500 Buyback Index is down 0.2 percent for the quarter,” report Caroline Valetkevitch and Chuck Mikolajczak for Reuters.

The PowerShares Buyback Achievers Portfolio (NYSEArca: PKW) is down about 1% this quarter compared to a 0.7% gain for the S&P 500. PKW tracks the NASDAQ US Buyback Achievers Index, not the aforementioned S&P Buyback Index.

Some of PKW’s second-quarter struggles can be tied to its large consumer discretionary of almost 34%. Although discretionary firms have been among the largest repurchasers of their own shares in recent years, the sector has struggled this year with the Consumer Discretionary Select Sector (NYSEArca: XLY) and the Vanguard Consumer Discretionary ETF (NYSEArca: VCR) down an average of 3%.[Returning Retail ETFs]

S&P 500 companies that initiated buybacks in the first three months of 2014 underperformed the benchmark index by 0.25 percent in the month after announcing, while a similar group outperformed the index by 1.29 percent in the same period a year ago,” Reuters reported, citing Birinyi Associates.

One quarter, one that is barely half complete at that, of under-performance is not a reason to write-off PKW. The ETF’s long-term track record and that of its underlying index confirm as much.