Superlatives are piling up for the TrimTabs Float Shrink ETF (NYSEArca: TTFS), one of the jewels among actively managed equity exchange traded funds.
Earlier this week, TTFS, managed by California-based TrimTabs Asset Management, surpassed $200 million in assets under management. Said another way, TTFS has doubled in size in just 14 months.
Actively managed, TTFS does not focus solely on companies engaged in share buybacks. Sub-advised by TrimTabs Asset Management, TTFS is an equal-weight fund that focuses on companies that have reduced their shares outstanding over the prior 120 days. The ETF’s holdings are selected based on three primary criteria: Shareholder friendliness via float shrinkage, profitability measured by free cash flow and balance sheet sturdiness measured by leverage ratio. [Float Shrink ETF Tops $100M in AUM]
Between 2009 and 2014, companies implemented $2.1 trillion in buybacks. Over the first three quarters of 2014 alone, corporate buybacks rose 27% to $567.2 billion. For instance, Apple (NasdaqGS: AAPL) spent $17 billion in buying back its own stock. [Apple Finally Enters Buyback ETF]
The pace of company buybacks has not abated. According to Birinyi Associates, buyback authorization of $118.32 billion last month was the strongest for any February on record. Meanwhile, investors pulled over $10 billion out of equity funds in January and February.
Earlier this year, earned another five-star rating from Morningstar. How companies fund buybacks and reduce net shares outstanding are also important ingredients in the TTFS stock selection methodology. For example, the ETF, which screens for robust free cash flow, shies away from highly leveraged firms that fund buybacks with new debt.
Another important element to the buyback ETF equation is sector weights. Like its rivals, TTFS is heavy on technology and consumer discretionary (those sectors combined for 42% of the ETF’s weight at the end of January).
Tech “has added $24.3 billion in new buyback capacity YTD, the second highest among all sectors. We have many mega-cap companies from this sector now actively engaged in float shrink as those IT companies evolved from high-growth companies into slower-growth but more mature companies now paying dividends and buying back shares,” according to TTFS Portfolio Manager Minyi Chen. [A Selective Approach to Buyback ETFs]
TrimTabs Float Shrink ETF
Tom Lydon’s clients own shares of TTFS.