In the months ahead, corporate buybacks could pick up and help support market momentum. Investors seeking to capitalize on the increased stock repurchases can track buyback-related exchange traded funds.
For instance, the PowerShares Buyback Achievers Portfolio (NYSEArca: PKW), TrimTabs Float Shrink ETF (NYSEArca: TTFS) and Cambria Shareholder Yield ETF (NYSEArca: SYLD) provide exposure to companies that buyback their own shares.
PKW specifically targets U.S. securities issued by corporations that have reduced shares by 5% or more over the past 12 months and is rebalanced quarterly.
TTFS and SYLD are both actively managed. TTFS tracks company insider activity, such as stock repurchases. SYLD focuses on stocks with the highest paying cash dividends and those that pay down their debt, along with companies that engage in net share repurchases. [Cash Rules Everything Around This ETF]
Goldman Sachs equity analysts believe that corporate buyers should return at the end of the month, reports Patti Domm for CNBC.
Supporting a potential rally ahead, corporations typically implement a large chunk of their buying for buyback programs in November and December. Since 2007, companies have executed an average 25% of their buybacks over the last two months of the year.
“Twenty-five percent of the (S&P 500) companies are going to have at least a 4 percent year-over-year impact on their EPS, aided by share count reduction,” Howard Silverblatt, a S&P indices analyst, said in the article.
Goldman Sachs analysts point out that most companies cannot buy stock in the five weeks prior to reporting earnings, which coincided with the S&P 500 peak on September 18. Essentially, buyback activity slows during earnings months but quickly picks up after reporting, which investors can expect at the end of October.
“The 12-month total shareholder return, which is buyback and dividends, was $866 billion for the 12 months ending in June. That was an all-time record,” Silverblatt added. “As long as we don’t tank in buybacks—and it doesn’t look like we will—we’re going to get another shareholder return record.”
PowerShares Buyback Achievers Portfolio
For more information on buyback stocks, visit our buyback ETFs category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own shares of TTFS.