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]
Over the past three years, PKW has posted an average November through December gain of 3.8%, outpacing the S&P 500 over that period in two of those three years.
The actively managed TrimTabs Float Shrink ETF (NYSEArca: TTFS), which recently turned three, has gained an average of 3.3% over the three November through December periods it has been around for.
Although buybacks are part of PKW’s “secret sauce,” the ETF emphasizes true float reduction and a company’s ability to generate free cash, not use debt, to finance share repurchases. TTFS is up 10% year-to-date. [Float Shrink ETF Comes of Age]
PowerShares Buyback Achievers Portfolio
Tom Lydon’s clients own shares of TTFS.