Buyback Seasonality Abound: How it Affects Buyback ETFs

It has been another decent though not spectacular year for exchange traded funds focused stock buybacks. The PowerShares Buyback Achievers Portfolio (NYSEArca: PKW), the king of buyback ETFs, is up 7.5% year-to-date compared to a 10.7% gain for the S&P 500.

If PKW does not manage significant out-performance of the S&P 500 over the last two months of the year, the ETF risks lagging the benchmark U.S. index for just the second time since 2008.

Help for PKW could be on the way because in terms of sheer dollar terms, November and December are usually the two strongest months of the year for corporate buybacks. “We expect companies will actively repurchase shares in November and December. We expect companies will actively repurchase shares in November and December,” according to Goldman Sachs.

For the purpose this article, which is to examine the potential impact of a seasonal trade in buyback ETFs, we are opting to focus on PKW because it is the oldest of the ETF’s that emphasize share repurchases in their underlying methodology. The $2.6 billion PKW celebrates its eighth anniversary next month. [Buyback ETF in a Familiar Spot]

Here is PKW’s Nov. 1 through Dec. 31 tale of the tape dating back to 2007, the ETF’s first full year of trading. In 2007, PKW lost 5% over that period, nearly twice the S&P 500’s over the same time frame. In 2008, PKW lost 2.8% from Nov. 3 through Dec. 31, but the S&P 500 was lower by 6.3%.

The following year brought better seasonal tidings as PKW surged 9.8% from Nov. 2 through Dec. 31, 2009 while the S&P 500 rose 7.4%. From Nov. 1 through Dec. 31, 2010, PKW added solid 5.8%, but that lagged the S&P 500 by 80 basis points. [Buyback ETFs Affected by Slowing Repurchases]