Members of the S&P 500 spent less on share buybacks during the second quarter than they did in the first quarter, though matching or exceeding the first quarter total would have been a tough task because that represented the second-largest period of buybacks on record.
S&P 500 repurchases “decreased 1.6% to $116.2 billion during the second quarter of 2014, down from the $118.1 billion spent on share repurchases during the second quarter of 2013. The $116.2 billion also represents a 27.1% decline over the $159.3 billion spent on stock buybacks during Q1 2014,” said S&P Dow Jones Indices in a statement released Tuesday.
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, according to S&P Dow Jones Indices data. [Buyback ETF Still Firm]
Decreased share repurchases during the second quarter did weigh on some of the ETFs that include buybacks or share count reduction as part of their weighting methodologies. During the quarter, the PowerShares Buyback Achievers Portfolio (NYSEArca: PKW), TrimTabs Float Shrink ETF (NYSEArca: TTFS) and the Cambria Shareholder Yield ETF (NYSEArca: SYLD) posted an average gain of just over 1.8% while the S&P 500 rose nearly 4%.
Although the pace of buybacks slowed a bit in the April through June time frame, investors’ enthusiasm for buyback ETFs has not dampened this year. PKW has added $105.4 million in new assets while TTFS is flirting with $150 million in assets under management after topping $100 million in January.
SYLD, which like TTFS is actively managed, has seen year-to-date inflows of $26.5 million. SYLD focuses on dividends, buybacks and debt reduction.
With U.S. stocks continuing to move higher, companies will be forced to pay more if they wish to continue the voracious pace of buybacks that has been established in recent years.
“If companies wish to continue the trend of decreasing share count (and therefore increasing EPS), they may need to spend more on buybacks,” said Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices, in the statement. “Third quarter prices are averaging +3.9% and the continuing bull market conditions are putting more options in the money. While share count reduction is a management tool for EPS growth, most companies have shown a tendency to protect their EPS from dilution by at least covering their employee issuance.”
Technology remained the leading sector for share repurchases in the second quarter, though its percentage of S&P 500 buybacks slipped to 26.3% from 30.9% in the first quarter, according to S&P Dow Jones Indices. The aforementioned ETFs are reflective of tech’s buyback dominance. PKW has a 16.3% weight to tech stocks while SYLD allocates 18% to the sector. TTFS has a 23% tech weight. [Float Shrink ETF Matures]
Apple (NasdaqGS: AAPL) led second-quarter S&P 500 buybacks at $5 billion, though as has been previously noted, the company did not reduce its shares outstanding total by enough last year to gain entry to PKW this year.
International Business Machines (NYSE: IBM), the second-largest S&P 500 share repurchaser in the second quarter at $3.66 billion, does not appear in PKW or SYLD. TTFS, like SYLD, is an equal-weight ETF and has roughly 1% weights to Apple and IBM. SYLD has 1.1% weight to Apple. [IBM Isn’t a Factor in Buyback ETFs]
Of the top-10 S&P 500 share repurchasers in the second quarter, only Home Depot (NYSE: HD) and Oracle (NYSE: ORCL) appear in PKW’s top-10 holdings. Those stocks combine for 10.4% of the ETF’s weight.
PowerShares Buyback Achievers Portfolio
Tom Lydon’s clients own shares of Apple and TTFS.