The PowerShares Buyback Achievers Portfolio (NYSEArca: PKW) finds itself in a familiar place: Flirting with another all-time high. Despite finishing modestly lower Monday, PKW is less than 0.4% below its all-time high.
PKW, which has established a cult-like following in recent years, is up just under 8% this year. That lags the S&P 500, though as has been previously noted, that is unfamiliar territory for the ETF. PKW has outperformed the benchmark U.S. index in five of the past six years and by wide margins on most occasions. [Buyback ETF Still Shines]
PKW has dealt with some headwinds this year, including its 34.4% weight to the consumer discretionary, which has been a laggard within the S&P 500. PKW’s weight to discretionary stocks is more than double its next largest sector allocation, 16.5% to technology, but there is good news on the discretionary front.
The Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) is up almost 4% in the past month and is also flirting with fresh all-time highs. XLY has also been one of the top asset-gathering sector ETFs since the start of the current quarter.
PKW has also endured large share repurchasers under-performing the broader market earlier in the year, data that say buybacks are slowing and some market observers saying the impact of buybacks will be muted going forward. Jonathan Glionna, head U.S. equity strategist at Barclays, told Bloomberg last week the future outperformance of buybacks will be “less robust” because buybacks are not an elixir for slowing growth.
Still, PKW’s ability to outperform broader benchmarks over longer time horizons should not be underestimated. As it has previously shown, the ETF does not need the largest U.S. share repurchasers to drive it higher. In fact, PKW has outperformed the S&P 500 by over 1,800 basis points over the past three years without holding Apple (NasdaqGS: AAPL), Exxon Mobil (NYSE: XOM) or International Business Machines (NYSE: IBM), three of the largest S&P 500 share repurchasers over that time. [IBM Isn’t a Factor in Buyback ETFs]
“Despite the above disadvantages of share buybacks, even with the market at its all-time high, the PKW ETF has a positive bias to prospering companies, with ample cash flow and promising prospects that are believed (by their management) to result in a higher stock price in the future. To be sure, the outstanding performance of the ETF vs. the S&P since its inception is the most solid evidence,” notes Aristofanis Papadatos in a post on Seeking Alpha.
Adding to PKW’s allure is that the ETF has the look of a value play. That despite frequent (and warranted) criticism that companies that are voracious buyers of their own shares rarely commit to buybacks when value is clearly obvious.
In addition to the hefty weight to discretionary names and the aforementioned 16.5% weight to technology stocks, PKW allocates 16.6% of its combined weight to financial services and energy names, two sectors that currently trade at attractive valuations relative to the broader U.S. market. Along those lines, the ETF is lightly allocated to richly valued defensive sectors such as consumer staples and utilities. [Buybacks Slow, but Buyback ETF Still Firm]
PowerShares Buyback Achievers Portfolio
